Legislature(2001 - 2002)
02/22/2002 10:04 AM Senate TRA
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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
SENATE TRANSPORTATION COMMITTEE
Anchorage, AK
February 22, 2002
10:04 a.m.
MEMBERS PRESENT
Senator John Cowdery, Chair
Senator Robin Taylor
Senator Gary Wilken
Senator Kim Elton - (teleconferencing from Juneau)
MEMBERS ABSENT
Senator Jerry Ward, Vice Chair
COMMITTEE CALENDAR
Problems Associated with the Construction Claim Processes Set
Forth in Alaska Procurement Code
PREVIOUS COMMITTEE ACTION
No previous action recorded.
WITNESS REGISTER
David Eberle, Regional Director
Department of Transportation and Public Facilities
P.O. Box 196900 m/s 2525
Anchorage, AK 99519-6900
Gordon Keith, Director Construction and Operations,
Department of Transportation and Public Facilities
P.O. Box 196900 m/s 2525
Anchorage, AK 99519-6900
Mark O'Brien, Chief Contracts Officer
Department of Transportation and Public Facilities
3132 Channel Dr.
Juneau, AK 99801-7898
Dick Cattanach, Executive Director
Associated General Contractors
No address given
Sam Baker, Attorney
Oles Morrison and Rinker and Baker
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745 W. 4 Ave. Suite 502
Anchorage, AK
Kevin Brady
Oles Morrison and Rinker and Baker
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745 W. 4 Ave. Suite 502
Anchorage, AK
Linda N. Silenski Henrikson, President and CEO
Linder Construction Inc.
8220 Petersburg
Anchorage, AK
D.J. Whitman, General Manager
Seward Ship Drydock
P.O. Box 944
Seward, AK 99664
Jerry Koenig, Project Manager
Swalling Construction Co.
235 F St.
Anchorage, AK 99501
Andy Romine, Operations Manager
Swalling Construction Co.
235 F St.
Anchorage, AK 99501
Jim Psenak, Owner
Jim Psenak Construction
No address given
Dan Libbey, Attorney
Oles Morrison and Rinker and Baker
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745 W. 4 Ave. Suite 502
Anchorage, AK
Larry Smith, President
D&L Construction Company Inc.
P.O. Box 680
Cooper Landing, AK 99572
Steve Dehart
B&R Fish By Products
P.O. Box 4336
Kodiak, AK
Avrum Gross, Former Attorney General
424 N. Franklin
Juneau, AK
ACTION NARRATIVE
TAPE 02-07, SIDE A
CHAIRMAN JOHN COWDERY called the Senate Transportation Committee
meeting to order at 10:04 a.m. Present were Senator Wilken, and
Chairman Cowdery in Anchorage. Senator Elton was present in
Juneau participating via teleconference. Senator Taylor arrived
at 10:10 a.m.
CHAIRMAN COWDERY said they were there to take testimony on the
issue of contractor claims. He said it was going to be informal
and invited the participants to take a chair at the table if they
were going to be involved. He said if you can't get a soft chair
get a hard chair, that way the meeting won't last quite so long.
Everyone went around the table and introduced themselves.
· Chairman John Cowdery, Chairman of the Senate Transportation
Committee.
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· Senator Gary Wilken, 6 year representing West Fairbanks in
the Senate. He is a wholesale food distributor and a part
time temporary politician.
· Senator Taylor, Senator from Wrangell and member of the
Senate Transportation Committee.
· Dave Eberle, Regional Director for Department of
Transportation and Public Facilities (DOTPF), Central
Region.
· Gordon Keith, Director of Construction and Operations for
Department of Transportation and Public Facilities (DOTPF),
Central Region.
· Mark O'Brien, Chief Contracts Officer, Department of
Transportation and Public Facilities (DOTPF), Commissioner's
Office in Juneau.
· Dick Cattanach, Executive Director, Associated General
Contractors (AGC).
· Sam Baker, Attorney, Law firm of Oles, Morrison and Rinker
and Baker; a large portion of their law practice is in
construction claims. A number of contractors they have done
business with have had claims against DOTPF.
· Kevin Brady, with Oles, Morrison and Rinker and Baker.
· Linda N. Silenski (ph) Henrikson, President and CEO of
Linder Construction. She was born and raised in Alaska as
were all her ancestors before her for as far back as they
can be traced. She and her husband have been doing
construction together all across the State of Alaska for
over 20 years.
· D.J. Whitman, General Manager, Seward Ships Drydock in
Seward. They contract (indiscernible) for DOTPF and
maintenance projects.
· Jerry Koenig, Project Manager, Swalling Construction Co.
· Andy Romine, Operations Manager, Swalling Construction Co.
· Jim Psenak, Owner, Jim Psenak Construction.
· Dan Libbey, Attorney, Oles Morrison and Rinker and Baker.
He was there on behalf of the Associated Builders and
Contractors of Alaska (ABC) as well.
SENATOR WILKEN said in the interest of full disclosure, he and
Mr. Baker played junior high school basketball together in
Fairbanks and had been friends for a long time.
SENATOR TAYLOR said he had the honor of litigating a matter with
Mr. Brady. They concluded and resolved that matter so he has had
an adversarial relationship with the firm.
CHAIRMAN COWDERY asked those people on-line to introduce
themselves.
· Larry Smith, President of D&L Construction Company Inc.
They have been in business for 20 years.
· Steve Dehart, B&R Fish By Products Inc. They are a general
contractor in Kodiak.
· Avrum Gross, former Attorney General representing himself
from Juneau.
· Ed Martin, Great Northern Construction at Kenai.
· Senator Elton, member of the Senate Transportation
Committee, said he would be sitting in at Juneau until his
caucus began.
CHAIRMAN COWDERY said they were going to have an informal hearing
to resolve and bring to light some of the problems and perceived
problems. He said the Associated General Contractors (AGC) came
to him with this concern early on and supplied him with a packet
of information. A letter in the file indicated there were major
problems in claim procedures. Delays were commonplace; the costs
to litigate claims are pretty minimal for the state but very
expensive for contractors. He hoped everybody would read the
file. He had a letter from the Commissioner of DOTPF and asked
someone from DOTPF to start off.
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MR. DICK CATTANACH, DOTPF, said his letter dated January 9 was
in response to a call from Chairman Cowdery. Chairman Cowdery
had a copy of the Swalling claim and had asked how extensive the
problem was and indicated an interest in having a hearing. Mr.
Cattanach indicated to Chairman Cowdery what he thought the scope
of the problem was and how over the last two years they had been
working with DOTPF on the problem. He said he had not done a
good job indicating the amount of work that had been done in the
letter. He had with him a three-ring binder which represented
some of the ongoing dialogue and where they were at that point in
dealing with the problem. There had been movement but
unfortunately the current system was still in place. Some of what
AGC was going to recommend to the Transportation Committee would
require and result in new legislation. He said DOTPF had been a
good partner and it had taken them two years to get where they
are. That was not necessarily all DOTPF's problem, they both have
been busy and the work had not received the priority it probably
should have. He wanted to make sure that everybody understood
DOTPF has acted in good faith on this issue.
CHAIRMAN COWDERY said his relationship with DOTPF has been pretty
good, better than in the past. He thought the fact that the
commissioner was still the commissioner after all these years
said something in itself. He said he did not want to get into
the legal situation but wanted the participants to point out what
is wrong with the system and make suggestions on how to improve
it.
MR. MARK O'BRIEN said DOTPF entered into a process three years
ago with AGC. They entered into a formal partnering agreement
whereby they agreed to set out the guidelines for how their
agency interacts with AGC on issues important to their
constituents that they want to bring forward to DOTPF. It set up
a very successful framework on how to deal with problems. There
had been a number of issues they worked through with Mr.
Cattanach and AGC and they expect to work through this and have
some positive outcomes.
DOTPF realized there are problems with the claims process and
there could be improvements. They had been working for two years
on that issue and it had taken longer than they thought. They
started looking at three basic premises. Those are the three
things that AGC wants to work on with the claims process.
· Fairer in terms of selection of the hearing officers.
· Quicker in terms of the entire process.
· Cheaper, to try where they could to reduce the costs.
He said cheaper was probably the most difficult one they had in
terms of an actual target because the claims process, if taken
all the way through the courts, is an expensive process. They
are struggling with that third target but thought they had some
ideas that will improve that.
MR. O'BRIEN said the group together as a task group had developed
a draft document they was circulating among their respective
groups. It targets specific changes to the existing statute. The
proposed mechanisms they are looking at putting in place are:
· An arbitration option for contract claims at $100,000 or
less. The contractor would have the option of selecting
arbitration.
· Claims over $100,000 would have the option of arbitration or
the hearing officer process to be selected by mutual
agreement.
MR. O'BRIEN explained that arbitration brought the idea of a
quicker response on claims issues. They envisioned a multi-
tiered approach depending on the value of the claim. It would
detail the level of documentation in the claim and the amount of
time the arbitrator would have to make the decision. This would
put some guidelines around the process and the time frames at
three different levels.
· Leave in place the option for the existing hearing officer
process.
· Suggest DOTPF adopt regulations that govern the selection of
hearing officers and arbitrators.
· By regulation, introduce the provisions by which the
arbitrators and the hearing officers will conduct these
claims adjudications.
CHAIRMAN COWDERY related a situation in the past where there was
concern about the choice of an Anchorage Municipality arbitrator.
The municipality claimed they paid his salary but he was
unbiased. The contracting community thought the arbitrator knew
where his paycheck was coming from. Chairman Cowdery hoped if
they got into arbitration they would get a better balance than
the arbitrators he had experienced in the past.
MR. O'BRIEN said the plan envisioned contractor participation in
a selection process for arbitrators and hearing officers.
CHAIRMAN COWDERY said this was an informal hearing and anyone
could participate. He asked they say their name and spell their
last name at least the first time for the record.
MR. O'BRIEN said when he started in that position one of the
immediate changes he made was in the hearing officer selection
process. That process now had input from both the contractor and
the state. That had been in place for over a year. No hearing
officer was selected unless they had been pre-approved by both
parties.
CHAIRMAN COWDERY said some claims had been in place longer.
MR. O'BRIEN said before he came in and changed that process the
hearing officer selection process was something where they just
went and picked them. He was not sure how they were picked.
SENATOR TAYLOR said he appreciated the comments and thanked Mr.
Cattanach for his summary sheet. He thought it was very
objective.
He said he was kind of shocked to hear that the only thing that
truly is available today is a hearing officer process.
Arbitration is normally and routinely used throughout the
construction industry by every other entity he was aware of. He
asked if that was still the state's position.
MR. O'BRIEN said that is not the case. They had used arbitration
on a number of claims. It is an option allowed currently under
the statutes.
SENATOR TAYLOR asked if it was up to the discretion of the
department as to whether or not to utilize that form of
mediation.
MR. O'BRIEN said it would require a mutual agreement between the
department and the contractor.
SENATOR TAYLOR said he could not imagine why any contractor would
not ask for arbitration because DOTPF prepared the bid
specifications. He asked if the bid specifications included the
option of asking the department for arbitration if they both
agree. He asked if that was part of the contract they were
sending out.
MR. O'BRIEN answered no.
SENATOR TAYLOR asked if that only happened sometime later on when
somebody had filed a claim. He asked if DOTPF would then say
let's get together and try to solve this through arbitration.
MR. O'BRIEN said this process is listed in all of their bid
doctrines that go out on the street. He said there was a
provision in AS 36.30 that mentions something along the lines of
nothing precludes the use of arbitration in dispute resolutions.
SENATOR TAYLOR said they were free as a department to include
that as a basic element within their contracts if they wished.
MR. O'BRIEN said that was correct.
SENATOR TAYLOR said that would eliminate for all intents and
purposes the hearing officer process and the appeal from the
hearing officer and so on because both parties would have agreed
in the contract to binding arbitration.
He said he appreciated the list of DOTPF claims and appeals. He
was particularly concerned about those involving the Marine
Highway System. He referred to the claim involving the Kennicott
and Halter Marine, the original builder of the vessel. He was
told at one time they had claims of somewhere in the neighborhood
of $30 to $40 million.
MR. O'BRIEN said it was as high as $50 million.
SENATOR TAYLOR said $50 million on a $90 million boat. The list
indicated it was settled 11/26/01. He asked what the settlement
was.
MR. O'BRIEN said there was a $500,000 total increased payment to
Halter Marine. It actually was less than that with money DOTPF
owed them for some additional work they had done.
SENATOR TAYLOR said the claim that was filed by the Ketchikan
Shipyards for work on the Columbia was not listed.
MR.O'BRIEN said that was correct. It wouldn't be listed because
it is not a claim that had been appealed to the commissioner's
office. He explained the original dispute is handled at the
project level so within each region as the dispute arises it is
attempted to be informally resolved. Then there is a series of
escalators that take it up through a formal contract officer
decision that is issued by the region. In the case of the
Columbia there was never a formal claim filed so not only was
there not an appeal to DOTPF there was not a claim at that time.
There was intent to claim.
SENATOR TAYLOR said what actually happened was they brought in a
settlement judge to sit down with the two sides and the result of
that was DOTPF paid $1.5 million of that claim. He said probably
more important to him than the amount actually paid was the
stipulation by the department that they would select an expert in
the maritime contracting, design and engineering field and have
that person review the entire process of contracting on marine
vessels that DOTPF Marine Highways had been going through. He
said that was his understanding of the stipulation in the
agreement.
He said if you read the press on that, DOTPF was constantly
telling the people in Senator Taylor's district that Ketchikan
Shipyards had no valid claim, that they were exercising their
rights for liquidated damages. DOTPF of course had all the
bonding tied up for Ketchikan Shipyards during that entire period
of time. That meant they did not have any bonding capacity to
bid on any of the ships scheduled to come up for maintenance in
that facility. Had the matter not been resolved when it was DOTPF
would have accomplished the bankruptcy of the third operator in a
row in that state facility. He thought the political
embarrassment got to some people and somebody finally sat down
and said they need to get it resolved so it got resolved.
SENATOR TAYLOR said they were looking at a resolution coming out
that basically had DOTPF admitting that they need to have their
entire contracting processes reviewed by somebody that knows what
they are doing with marine contracts. That to him was the most
significant part of that settlement. He said the reason they
were all sitting there was because the same problem appeared to
be growing again, within the contracting field in general, across
the state. He asked Mr. O'Brien to comment on that settlement
and where they are with that expert and what advice, if any, had
he provided so far and what did DOTPF expect to come out of that.
MR. O'BRIEN said unfortunately he was at a disadvantage because
he wasn't involved in the process nor had he ever seen or read
the settlement. He said he did know that the marine industry is
a difficult industry in terms of contracting. It had been
difficult when he was the contracting officer for the Alaska
Marine Highway System a number of years ago. It has been fraught
with difficulties in terms of getting ships in and out of yards
in a timely manner. He said when you take a ship in you don't
know until you open up the hatches what you have so, contracting
for that in advance, in a fixed price situation, is difficult at
best. He thought what Senator Taylor had seen in that case was a
recognition on the part of the department that it is always
willing to look at it's contracting procedures. There are
alternate procedures in the marine industry that would benefit
the department and the contractors and they were willing to
consider them. He said that was how he would characterize it.
SENATOR TAYLOR said the reason his state ended up paying an extra
$1.5 million and the reason his state did not collect any
liquidated damages was because inherent within the department is
a problem that he had seen throughout his life in Southeast. The
problem is [the division of] design and engineering makes
decisions and when they actually get into the boat or onto the
ground they find out they were not good decisions and then they
are faced with having to make a change order. There is a huge
reluctance within the department to admit it made mistakes.
Maybe it is institutional pride or arrogance. The poor state guy
running the job on the ground has to get the job finished. He
tells the contractor to put in his claim and they will work it
out, just keep going. He said that was literally what happened
throughout the Columbia contract. The design team and the
engineering team actually required the purchase of various
modules and equipment that had to go into that boat. They knew
before they sent out those design specs that equipment could not
be delivered within the time frames of the contract. They knew
they couldn't make that deadline but when the deadline came,
boom. George Capacci, General Manager of the Marine Highway
System was on the front page of the newspaper saying we are going
to get these guys because they owe this much per day for not
getting the boat out. Senator Taylor thought the biggest problems
he had seen were inherent within the department.
SENATOR TAYLOR said he watched road project after road project
get designed in Juneau without ever sending anybody down to
actually walk the ground and figure out what they were going to
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do. He said the 3 Avenue bypass in Ketchikan was a $50 million
project all tied up and all screwed up and going through complete
redesign. They had to stop the contract in the middle of the
work. He said he could show them road projects like that all
over his district. He asked what the department did for
accountability when somebody screws up and costs the state an
extra $2 to $3 million on a job that should never have happened.
MR. DAVE EBERLE said he could not say that he had encountered
that situation directly. He said if their engineers screwed up
he would be the one to stand up and say they had made a mistake.
He did not try to hide mistakes they made and thought Chairman
Cowdery could vouch for that on the airport. He was sitting down
with the contractor and dealing with the issues and they are
resolving them all very successfully. He said if they made a
mistake he is willing to admit it.
SENATOR TAYLOR asked what happens with the personnel who made the
mistake.
MR. EBERLE said he had not run into the problem where there was
somebody who maliciously did something wrong.
SENATOR TAYLOR said he was not talking malicious he was just
talking about some guy doing his job as best he can but he blows
it.
MR. EBERLE said if he blows it they have to have someone check
his work in the future. He can't fire a guy if he has made an
honest error.
MS. LINDA HENRIKSON said the problem she saw was the department
did not appropriately select a qualified person to administer the
job. She said her case was about a $3 million contract. The guy
on site directing them in their work had not graduated from
college. He had taken some biology courses and was a quasi
fisheries biologist. The only construction he had been familiar
with was installing parking lot lighting fixtures. The biggest
contract their contracting officer had ever preformed was a
$250,000 supply contract. None of the folks on the project were
qualified to administer the project. The only one qualified was
the original project engineer who was a Department of Fish and
Game employee. He reported to DOTPF but he retired. The fisheries
biologist was incompetent and testified so at the hearing officer
level. The contracting officer testified at the hearing officer
level he was not competent to administer the project.
CHAIRMAN COWDERY said he had experienced similar situations. One
of the things he wanted to look at closely in the future was
having the design done and carried through, as is done in the
private sector. If a project is privately designed, the design
people and the engineering firm would do the contract management
of the project. Sometimes if that is not the case it kind of
invites problems.
MS. HENRIKSON said on her particular job the project manager,
Bruce McCurtain (ph), resigned early. Less than a week before he
resigned she had a telephone conversation with him where he
disclosed to her that Montgomery Watson had a bond on that
particular project for $250,000. It was Mr. McCurtain's opinion
in that telephone conversation that the state needed to go after
that bond. She said he retired and that was the last conversation
she had with him until two years later when they were at the
hearing officer level.
They also did ad nauseam depositions, and Gordon Garcia testified
in his deposition contrary to what the letter from the state
says. Gordon Garcia testified they were paying Montgomery Watson
to fix their design errors from the liquidated damages that they
illegally withheld from her contract. When members of the
Legislature asked them where the balance of the money for the
contract was, they were informed that they had spent it on
Montgomery Watson. She said they could check that with Senator
Torgerson's office.
CHAIRMAN COWDERY said he had asked DOTPF very late, at 4:00 p.m.
yesterday afternoon, to supply this committee with a copy of all
the claims. It was too short of notice to prepare for this
hearing but he was promised they would prepare it for them. He
wanted to know when the claims were filed and when they were
settled. He wanted that kind of information so they could do
better work. He thought that information from DOTPF would give
them enlightenment on just how long it takes.
MR. SAM BAKER said there were eleven different cases on the list
and his office handled six of them. There had been a number of
other instances over the last several years involving contractors
they represented on claims involving DOTPF, which were not on the
list. He said for various reasons he had no objection to that.
MR. BAKER said the problem they were dealing with is far more
serious than what was being presented. He is the attorney for
Alaska Ship and Drydock and intimately familiar with the problem
involving the vessel Columbia. Early on in the dispute process,
after his firm got involved, he talked to Mark O'Brien and was
satisfied that DOTPF through the Alaska Marine Highway System
(AMHS) recognized the seriousness of that problem far sooner than
when the political aspects of it came to the forefront. DOTPF
and its lawyers got on top of it and genuinely worked the problem
to a mutually acceptable solution. He said he was not sure that
would have happened if the political pressure had not come to
bare but he knew they made a genuine attempt.
He said the problems they had gathered to talk about are very
different from what happened in the Columbia case. He would like
to see that kind of attitude reflected more. Mark O'Brien had
exemplified attempts and attitudes that will help solve these
problems.
MR. BAKER said these problems had been going on for a long time.
He had been active in representing contractors in Alaska against
DOTPF for some 30 years. His first major case was representing
the contractor who built the Juneau Outer Drive. It was a joint
venture of A & G and Stock & Grove, two very experienced old time
Alaska contractors. They had an enormously big problem with
approximately 300 changes that were attributed to design related
problems.
He said they needed to talk about the problems after the
contractor gets a contracting officer decision. That is the end
of the administrative process within the full control of the
department. Then comes the appeal process through the hearing
officer. If that is not satisfactory, you go to court. At this
meeting they need to concentrate on the appeal process. He said
to keep in mind, the way it works under the state spec, by the
time you get to the appeal process you are probably a couple of
years down the road from the end of construction. There are darn
few contractors, unless they are pretty well heeled, that can
even keep pace with that very laborious, evocative, difficult
process.
MR. BAKER said in the Juneau Outer Drive situation they went to a
dispute review board and the three people, who were subservient
of the commissioner, ruled against them. They went to court and
the department tried to enforce that adverse decision. The judge
told the state to listen because he was going to give them an
option. The judge said they either go back and reconstitute a
fair, objective board or he was going to try the case de novo
right there. The department selected a fair neutral board. They
heard the case and awarded them about a million dollars and they
settled it on the steps of the State Supreme Court on very fair
terms about six or seven years after the job was over. It was a
terribly laborious process.
He had a memorandum from one attorney general to another dated
December 28, 1976. His firm had gotten it through discovery in
that case. It talks about taking advantage of the superior
resources of the state and prevailing through the process of just
simple attrition.
CHAIRMAN COWDERY asked him to distribute that copy.
MR. BAKER said Joe Perkins (Commissioner, DOTPF) is a long time
personal friend of his and he had known Dave Eberle for a long
time. They were not talking about lack of competence because
these people are extremely competent. He said they were talking
about the lack of systems able to assure time after time that due
process is going to be applied to each and every major dispute.
In most instances these things get so large that the ability of
the contractor to survive is at stake and they know it. DOTPF
has the ability, by postponing the ultimate decision, to affect
the contractors' ability to function. He said this administration
is not doing anything like what was set out in that
correspondence.
He said another part of the puzzle is, in each one of these
cases, when they get to the hearing officer level, the Department
of Law (DOL) represents the department. As good as DOTPF's
intentions may be, they don't have any control over those
lawyers. Each and every one of those lawyers has their own level
of subjective interests and bias and they have a significant
function in controlling what goes on.
He gave an example of a case where he represented a contractor
who had a $10 million contract on the Tok Cutoff. They
encountered a lot of change due to the varying nature of the
ground conditions in a couple of gravel sources. This resulted
in a large claim of about $2.5 million. After getting an adverse
contracting officer decision they tried the matter in front of a
three-person board headed by Woody Johansson (ph). Mr. Baker
said Mr. Johansson's reputation in DOTPF in Alaska was
magnificent. After two weeks the board gave his client nothing.
They then went through five weeks of trial in Juneau before Judge
Allan Compton. The judge summoned the attorney general into his
chambers on a holiday and basically forced the state to settle
with that contractor for 100 cents on the dollar. The judge told
the assistant attorney general he did not want to ever see him or
his compatriots back in his courtroom with this pathetic level of
preparation. They were so confident based upon being able to
prevail in front of their own peers that they did not do much to
prepare for the trial.
MR. BAKER said those are historical examples that set the stage
for what is presently going on. Under the current administration
he had never seen such a terrific level of controversy going all
the way to the hearing officer level. He said it was great for
his law business, they could hardly keep pace, but it was
frustrating and aggravating to have very little control in
assuring their clients they were going to get a fair shake
against the department.
MR. BAKER said a few years ago he represented a contractor called
Summit Paving who had a large contract in Fairbanks to construct
a large highway project. They planned to dewater. The state had
in its possession information from the Department of Natural
Resources (DNR) that there was going to be a significant
restriction on dewatering permits. His client got the job,
applied for a permit and was turned down. He said that was not a
surprise to the state but the contractors who bid the job did not
know that. The hearing in front of the state's appointed hearing
officer lasted a couple of weeks. Her name was Ballou, a local
lawyer and she ruled completely against the contractor. They
appealed to the local Superior Court and the decision was
reversed and shortly after that the matter was settled.
The problem they have is going in front of a hearing officer
selected by DOTPF. He said they just have no confidence
whatsoever they are getting a fair shake. They were able to
persuade the Superior Court that they did not on a very minimum
standard of review. He said when going to court after an
administrative decision the court cannot fully review it de novo,
they have to review it on a limited record.
MR. BAKER said subsequent to that there had been other matters.
For instance, Quality Asphalt Paving was terminated on a major
highway project in Fairbanks right after the job began. It was
thought that utilities existed in the right-of-way that would
interfere with that project. After there was some postponement
or suspension of work for a short period of time, the contractor
submitted a significant claim for delaying the outset of his
project. DOTPF did not like that so they terminated the contract
for convenience, thinking it was just going to cost them whatever
the contractor had accomplished and he had not really done much
work. That resulted in about a $4 million claim. They went
through a full-blown hearing. It was disputed to the hilt and the
hearing officer, a local Anchorage attorney who is one of the
finest construction lawyers in the state, ruled in favor of the
contractor. That matter is on appeal in the State Supreme Court
because there are issues over some aspects of the decision. They
would like to get the matter settled but they cannot because the
attorney general is in charge of that case. The attorney general
has sole discretion over what to do with it and there is no way
anybody is going to settle with them.
MR. BAKER said he would like to see arbitration allowed across
the board. He thought arbitration would settle everybody's
problem. It would solve everybody's concerns about objectivity
and time limits. Arbitration is designed to deal with both of
those concerns and it deals with them extremely well. If DOTPF
doesn't want arbitration and wants to maintain the hearing
officer process, it needs to arrange for letting the contractor
participate and assure that the hearing officer is going to be
objective.
He said something also needs to be done at the contracting
officer level. He said in Jim Psenak's case it took a couple of
years to get a contracting officer decision and it was completely
adverse. They then took the case to a hearing officer, Mark
Roland, a magnificent retired judge. They don't have his decision
but know they are going to get a fair shake from him. Mr. Baker
said the problem occurred when they took the deposition of the
contracting officer. She had never read the plans or the
specifications and basically just incorporated in her decision
the advice of her staff. He said there needs to be accountability
in this process. It would cure a lot of problems if they were
assured someone in the department, someone of the level of a Dave
Eberle, was there and accountable. Then if there were long
delays or unreasonableness in the decision, somebody could stand
up and address it.
CHAIRMAN COWDERY asked Mr. Eberle what exactly substantial
completion meant.
MR. DAVID EBERLE said substantial completion is generally defined
in the contract. He said Mr. Baker could probably address it
better in terms of legalese but it means it is ready for
beneficial occupancy. It may not be 100% complete but it is very
usable to the owner. Landscaping may or may not be completed,
depending on the contract. If there is some paperwork to be
cleaned up, that is generally beyond substantial completion. He
gave the example where the public is driving on the road. There
may be some paperwork to clear up or there may be an electrical
problem here or there that still needs to be ironed out but,
generally speaking, substantial completion is when it is usable
for the owner.
He said he wanted to comment on Ms. Henrikson's comment relative
to competency of the people in the field. He wanted the record
to reflect those were not DOTPF employees. The Department of
Fish and Game (ADF&G) administered the project.
MR. KEVIN BRADY said in defense of the department there is a
problem with the delegation of authority to various other state
agencies that perform design functions and administration
functions. In Mr. Psenak's case, the delegation of authority was
to DNR and without question the project design was flawed. It
was an abysmal lack of coordination, which they would never
expect had the plans been reviewed by DOTPF. This led to a
horrific claim and three and a half years of litigation.
MR. DICK CATTANACH said they were not there to attack DOTPF.
They were gathered to look at the process.
CHAIRMAN COWDERY said he was allowing latitude but reiterated
that was not the purpose of the hearing.
MR. CATTANACH thought Ms. Henrikson's problem was part of the
problem with the process. He said Mr. Eberle was right to point
out it wasn't DOTPF's people but a contractor has to put up with
whoever the owner is. The process should be the same and should
be fair and equitable and, in that case, it certainly was not.
MS. HENRIKSON thought the process would have been more fair and
equitable if they had given her any DOTPF employee they had. She
would have taken any one of them.
MR. D.J. WHITMAN requested the Chairman ask DOTPF to do a chart
that would show the real impact on a small contractor. He wanted
them to start a chart with the contract date and completion date
and show the full spectrum of what it takes to get to an appeal.
Seward Ship Drydock is a small company with about 50 employees
and actual or gross sales of $3 to $5 million per year. In 1986,
'87 and '88 he spent over $350,000 just to get to a hearing.
That was his profit for two and half years. He thought it was
kind of skewed, they were asking why does it take so long.
CHAIRMAN COWDERY said, in defense of DOTPF, he had asked them to
supply the information as late as about 4:00 p.m. the previous
afternoon. He had asked them questions and they understood what
he and Mr. Whitman wanted.
MR. WHITMAN wanted to applaud Senator Taylor. He said there is
growing concern about dealing with the Marine Highway System in
particular. He had been doing Marine Highway projects for over
30 years and in the last seven years he had seen many of these
contracts end up in litigation or a potential claim. They never
used to have that; it is a new problem. He thought Senator
Taylor recognized the other major problem was with the design of
the Marine Highway vessels. Many times designs are put out on
the street, be it for a marine highway system or a road, that are
inadequate to the needs of the highway or the ship. DOTPF's
mindset is that is the contract and it will not change it. DOTPF
cannot be convinced that its design is wrong and it forces the
contractor into building, per contract, an inferior product or a
product that is way outside the normal cost. It is always at the
expense of the contractor because most of those projects are
design and build. DOTPF needs to go back and correct the design
at the very beginning.
MR. WHITMAN said the last point he wanted to make involved
dealing with the contracting officers, their peers and those
below them at the project engineer level. Many times project
engineers are assigned to projects and do not have a clue of what
the project is or what it entails. They do not understand the
mechanics of it yet they are tasked with making decisions. They
pass those decisions to the contracting officer and they are
upheld time and time again and it is always in favor of DOTPF.
SENATOR TAYLOR thanked DOTPF staff for their comments. He said
he was well aware of the process and the frustrations that were
continuing to build about how the process itself wasn't working
and takes far too long. Before the contract in Ketchikan "had
gone awry" he advised Ketchikan Shipyards to consult with
someone. He was pleased they found Mr. Baker who has a good
enough working relationship with the department that people were
trying to pull things together. The press certainly did not
indicate the cooperative attitude between Mr. Baker and Mr.
O'Brien and things were getting resolved.
SENATOR TAYLOR said had that contractor been treated, as all
other contractors seem to be, and been forced to go through the
process and then showed up on this list, they would have been
dead two years before they got to the final appellate process to
hold a hearing in front of a hearing officer. They would have
had absolutely no work that they could do with their entire crew
in Ketchikan. The second largest employer in Ketchikan would
have had no work because they had no bonding capacity. With no
bonding capacity they could not bid on the next ship. If there
were any claims in the next contract it would have wiped out that
bonding capacity and all those bonds are then sitting there.
There are not a lot of contractors out there with $50 to $100
million worth of bonding capacity. When they take out a $5 or $6
million bond and then another one, and both of those lie fallow
because of claims, they very quickly run out of people and money.
He had two questions for the department. He said Mr. O'Brien had
talked about the department moving into a form of binding or
mandatory arbitration. He asked if that arbitration would include
or did include a difference in attitude on the part of the
department on the payment of interest. He said DOTPF had taken an
attitude that was 180 degrees different from what was required of
many other departments. Interest in the interim would determine
whether people could accomplish things or lose totally.
MR. O'BRIEN said they approached AGC about introducing
legislation to put interest back on the books. The department
was not opposed to interest.
SENATOR TAYLOR asked if they were paying interest now.
MR. O'BRIEN said they were. The law went into effect October of
2001.
SENATOR TAYLOR said that was the law they passed. He thought
half the stuff they pass gets vetoed.
MR. O'BRIEN said it was important to keep perspective as they
hear claim difficulties described. Nobody denies there are
difficulties or that one claim is one claim too many. He asked
them to keep in mind that 98% of contracts from the Department of
Transportation, the Department of Fish and Game and the
Department of Natural Resources never go to claim. He said they
were talking about 2% of the contracts.
CHAIRMAN COWDERY asked if on 98% of the contracts there were no
claims or that the claims are settled.
MR. O'BRIEN answered in 98% of the contracts there is no claim.
He asked them to keep it in perspective.
AN UNIDENTIFIED SPEAKER said Linder mentioned the claim involving
Montgomery Watson. He thought the letter stated there was an
existing lawsuit that had been filed on that design.
MS. HENRIKSON said they gave them her money.
AN UNIDENTIFED SPEAKER said that was an ADF&G project and he
could not argue where money was spent. He said he could tell her
the Attorney General's Office had filed a lawsuit on that design.
MS. HENRIKSON asked if they knew that ADF&G folks asked
Montgomery Watson, the very people who were guilty of the design
defects, to write the hearing officer's decision for them.
She wanted to make a comment about the administrative hearing
level. She said when you go through the process you are forced
to meet all the milestones in filing the claims and the project
engineers and contracting officer's decisions while they actively
go through this strategy of protracted conflict and winning by
attrition. She read the conclusion from the hearing officer:
The question of liability is not difficult. Linder
experienced different site conditions than contemplated
in the contract plans and specifications. Gordon
Garcia's journals and weekly reports and Bruce
McCurtain's letter of October 7, 1997 concede the
issue. Witness testimony underscores the finding. More
importantly, the stipulated facts resolve the issue.
MS. HENRIKSON said she was never at the fault they said she was.
The hearing officer stated that. Whatever level you prevail at,
whatever degree, whatever the dollar amount, at the hearing
officer level you are not entitled to attorney fees. They force
you to have an attorney. She said her particular hearing lasted
three and one half weeks at hundreds of dollars an hour. The
depositions were another two weeks at hundreds of dollars an hour
and you are not entitled to get reimbursement even though you
prevail.
CHAIRMAN COWDERY said he would like DOTPF to respond on the
interest. He asked if they had any problems if the court in the
finality of a settlement awarded the claims and also awarded the
attorney fees.
MR. O'BRIEN answered most of the projects the department does are
federally funded. The provisions of the federal funds expended
prohibit them to pay attorney's fees from those federal funds.
CHAIRMAN COWDERY said they could pay it out of DOTPF's budget.
MR. O'BRIEN said that is correct, if the legislature thought that
was the position it wanted to take. If they wanted to fund those
costs, they could pay them.
MR. KEVIN BRADY said his comment would follow up on Mr. O'Brien's
comment that 98% of contracts don't result in claims. The
fundamental problem was the contractor with the claim valued at
$10,000 to $100,000 would prefer to walk away than expend the
dollars chasing that money. They figure they took a loss on that
one and they will make it up the next time around. He said there
needs to be built into the system a way to address smaller claims
in an expedited fashion. There needs to be some accountability
built into the system. He pointed out:
Were there more incentives to sit down with a
contractor and settle the case, to make the contracting
officer's decision mean something. To utilize it as a
benchmark against an award of proposal prep costs,
attorney's fees, consultants' costs, there would be
much more accountability in the way the decision [was]
written. And I dare say that it would result in
settlement of most of these claims.
He said, as it is now, from his experience, and he is an advocate
for his clients, the contracting officer's decision is not
impartial, it is not unbiased, it is usually not timely. It is
the department's advocacy document. It is written for the
specific purpose of providing a defense for the contractor's
claim. That is at odds with the federal system wherein the
contracting officer is viewed as an impartial neutral.
Consequently, at the federal level, contracting officers do in
fact award to contractors. What they have seen, right or wrong,
is decision after decision that says the contractor is entitled
to nothing. They then spend the additional $200,000 to $400,000
it takes to get the matter through to a hearing and they get
substantial hearing officer awards. He thought the department
would be somewhat embarrassed by that disparity between what they
say the contractor is entitled to in the contracting officer
decision (COD) and what the hearing officer ultimately awards.
It is fairly clear the hearing officer sat down and went through
the exhibits, listened to the testimony of witnesses and took a
180-degree view in most instances from the contracting officer.
MR. DICK CATTANACH addressed Senator Cowdery's question about
whether DOTPF would look favorably to allowing the contractor to
capture other costs of claims. He explained they had talked to
DOTPF about it and made a proposal. In the claims process the
state makes a judgment as to what the claim is worth. The state
says they will offer X. The contractor comes in with his claim
and it is Y. Both the claim and the offer frequently tend not to
be in the reasonable range. With this proposal, the hearing
officer or arbitrator comes up with a settlement number. If it
is more than the state was offering, the contractor would receive
part of his costs as a percentage of the deviation between what
he received and what he had been asking for. The whole idea is
to make both parties more honest, to get them closer to a number.
When they are close to a number then settlement is fairly easy
and they do not have to go through the whole process.
CHAIRMAN COWDERY said he asked the question because he realized
most of the projects they were talking about were done with
federal funds but the settlements were generally state decisions.
It would make the state's decisions unbiased or perceived as
unbiased if they had to step up to the plate and pay expenses if
it was not legitimate.
MR. BRADY said it had been explained to him that one of the major
disincentives to settlement is if a matter is litigated through
to a hearing, the Federal Highway Administration (FHA) will in
fact pay 91% of any award. If the department has to actually sit
down and settle they then must go on bended knee to the FHA to
sell their position to get those federal funds. That builds in a
disincentive to settling the claim. He said he did not know if
that is the case.
MR. O'BRIEN said that was not the case.
CHAIRMAN COWDERY said right now in a dispute if someone from the
private sector hires Mr. Baker he looks to his client for
payment. He asked where the money comes from when it is defended
by DOTPF.
MR. O'BRIEN said the costs of DOTPF to defend claims on federally
funded projects run by the department are eligible for
reimbursement.
CHAIRMAN COWDERY asked if that included attorney fees.
MR. O'BRIEN said it included the attorney fees and the hearing
officer costs. Those costs are charged directly against those
projects. He said if the state were to enter into a settlement
agreement and agree to pay some amount on a claim prior to
receiving a hearing officer decision, the exact same rules apply.
They have to go the FHA and explain the merits of the case and
whether or not they followed the contract. The FHA makes a
decision on a case-by-case basis as to whether they participate.
CHAIRMAN COWDERY asked if that was an incentive or disincentive.
MR. O'BRIEN said it was neutral. It had no affect on causing
them to take an action one way or another because under both
scenarios they are eligible for federal reimbursement.
SENATOR WILKEN said Mr. Brady had made an assertion and Mr.
O'Brien said no. He wanted to know what Mr. Brady wanted to say.
MR. BRADY said in one particular case he was approached by an
assistant attorney general who mediated a portion of the dispute.
The assistant attorney general's major concern was that Mr. Brady
help them sell any settlement to the FHA. From that he drew his
own conclusions but it was his understanding there is never any
reluctance on the part of the FHA to fund an award by a hearing
officer. He said Mr. O'Brien can either confirm that or not.
MR. GORDON KEITH joined in because he had been involved with
every aspect of this and the Code of Federal Regulations (CFR)
said federal participation was on a case-by-case basis. He
recently settled a $2.6 million claim before it went to an
engineer's decision and got federal aide participation. On
another case he had been involved with a court decision and it
took almost five years to convince the FHA to participate. He
said there was doubt that if you go to court and get a decision
in Superior Court it is easier to sell to the FHA on a case-by-
case basis but it is completely on a case-by-case basis.
SENATOR WILKEN said he was there as a member of the committee and
also on behalf of a couple of constituents. He said they were
talking about dispute resolution, arbitration, hearing officers,
accountability, small claims resolution and delegation of
authority. He said some contractors and the state were going at
one another forever and it seemed strange to him they were
sitting there dealing with basic dispute resolution issues. He
said Mr. Baker had been active in the field for 30 years. He
asked why it had not been taken care of 25 years ago. He wanted
the opinion of Mr. Baker and former Attorney General Gross on
what had changed. He said they were acting as a claims commission
and a report would come back from the administration that would
set the guideline for these five or six items.
MR. BAKER said from the standpoint of his office in the last four
or five years they had handled at least a dozen significant
claims against DOTPF or claims in which DOTPF participated
through the hearing officer process. He had never seen it
escalated to that level in the past. He had never seen so many
claims. The reason why it escalated to the point where they are
trying to do something about it is because they saw how much
damage it caused. Jim Psenak was no longer in business because
of the long protracted delay in even getting his issues
addressed.
MR. BAKER said they represented Seward Ship Drydock on a matter
where they went through the complete hearing officer process and
got completely shut out except for very minor compensation in a
matter that Avrum Gross decided. He said they have great respect
for Avrum Gross, he is a wonderful lawyer and has a great record
but it has all been from the standpoint of expertise in defending
the State of Alaska. Mr. Baker said he would have no confidence
whatsoever in ever appearing before someone like that in terms of
having him make a decision that was supposed to be fair and
unbiased from the standpoint of the contractor.
MR. BAKER agreed with Mr. O'Brien that something needed to be
done in order to make the system quicker, fairer and cheaper
because there was so much of this going on and so little being
done to cure the problem. He said Mr. Keith mentioned the Pernon
(ph) and Thompson matter where both parties got together and
settled. He wished all of their clients could have the assurance
they were going to be treated that way but they were not. Each
case seemed to be dealt with depending upon the attitudes of the
individual participants on the part of the department. He said
that is a bad system because everybody ought to be assured of
having the same level of impartiality applied to their claim or
their dispute so they would have an opportunity to get it settled
by an impartial person who was trying to quicken the process and
give it all the appearance of fairness even if they disagreed
with the merits of the contractor's position. He told Senator
Wilken that was why they were there.
SENATOR WILKEN asked if he heard him say it was an attitude
change.
MR. BAKER said no. He thought for some reason DOTPF was taking
tougher positions and tougher stands on claims than he had ever
seen but he did not fault them for that. The only thing he
faulted them for was not making more effort to get these things
litigated or resolved through the administrative process more
timely and more objectively.
SENATOR WILKEN said they had a $1.4 billion capital budget for
the last four years. He asked if the fact that there was more
work on the street was part of the problem.
MR. BRADY said the DOTPF budget was at an all time high and he
believed there was a very high level of attrition at DOTPF. He
said he was not sure they had the quality staff to design,
support and administer all of the contracts. He thought that was
a good reason to increase their budget and get them the qualified
people they need.
He thought the fundamental problem was one of accountability. He
explained when a contractor approached a project engineer with a
claim and explained the situation they were supposed to work that
out at the project level. But when that happens there is
immediate reluctance on the project level for most project
engineers to accept responsibility and deal with it right then
and there. That usually led to acrimonious communication and was
elevated up through the process. By the end of the job the
contractor and the department are not really on speaking terms
anymore and that carries through every step of the way right up
to and including the hearing.
MR. BRADY wanted to see most of these cases settled before the
need to come see a lawyer because he had seen Mr. Psenak in
bonding jail for the last three years. He had seen what it did
to Linder Construction and D & L Construction. He said these are
vibrant companies taking risks, bidding construction projects,
giving people jobs, doing the best they can and all they are
asking for is to be treated fairly.
SENATOR WILKEN asked former Attorney General Gross if he could
share his 25-year perspective on why they were now dealing with
those basic issues.
MR. AVRUM GROSS said he wanted to respond to some of the things
he had heard. He said he was an attorney in Juneau and had lived
there for 41 years. He said he was a partner with Susan Burke
who has practiced in Juneau for about 30 years. They have both
been hearing officers for DOTPF and other agencies of state
government for a little over 10 years. Because of that they have
seen the hearing officer process from the inside. He thought
since this hearing was about that process they might enjoy
getting the perspective from someone who actually has been
involved in these claims not as an attorney or contractor but
somebody who actually participated in the decision making
process.
MR. GROSS said he understood that 98% did not go to claim and he
was going to talk to the other 2%. The other 2% had legitimate
and honest concerns. He said he was not there to in anyway
suggest their claims were not appropriate, should not be honored.
He had been a longtime advocate of paying interest on contract
claims. He had urged that to the department and had in fact
awarded it. He agreed with Senator Taylor that attorney's fees
are appropriate to be awarded in contract claim disputes. He
said he was sure Senator Taylor recognized, as he did, that full
attorney fees are never awarded in court or anywhere else. He
thought some benefits should be given to a contractor who
prevails.
MR. GROSS explained to them the hearing officer process from the
inside and what he had seen over ten years and as Attorney
General. The hearing officer process is common all through state
government. DOTPF is not the only agency where the hearing
officer resolves claims. The biggest administrative claim that
was ever held in this state was one he presided over with the
Department of Revenue. All tax claims have to be resolved in the
end by the commissioner before they can go to court. The
Commissioner of Revenue, like the Commissioner of DOTPF or any
other department where a commissioner is required to make a final
decision, appoints a hearing officer to conduct the hearing for
them.
He and Ms. Burke became involved in that process with DOTPF in
1991 when DOTPF came, unsolicited, to them. DOTPF came to them
because they had a hearing which was simply too big for them to
handle. They needed an attorney that had a large amount of
experience in litigation and had handled fairly significant
matters. It was the Tustumena refurbishment in which claims were
made of close to $7 million by the contractor and the state was
claiming in excess of $1 million in counter claims and liquidated
damages. There were national law firms involved. The hearing took
approximately seven weeks to present. The opinion he wrote was
300 plus pages. He said imagine if the commissioner had to do
that himself. It would be ridiculous so the commissioner
traditionally appoints someone whom he trusts to listen to the
evidence and make a recommendation to him as to what he should
do. He said that is the way it works in all agencies of state
government. It happens for all disputed matters and is not
unique.
MR. GROSS said since that time he and Ms. Burke handled about ten
matters for DOTPF over a course of about eleven years. Most of
them had been bid protests. In bid protests one contractor loses
and one contractor wins but it is not a question of DOTPF against
the contractor. The vast majority of his work has been in the
contract claims area. He did three major cases, all of which are
before the committee, the Tustumena refurbishment in 1991, the
Terror Lake Hydroelectric Project in 1995 and the Tustumena
engine refurbishment in 1997 at Seward's Shipyard.
He said for all of those cases the letter to the committee
suggested he and Ms. Burke are biased or that hearing officers
are biased. The example of this given in the letter was the fact
that Ms. Burke and he over eleven years have been paid something
like $400,000 for all the cases they had handled and, because
they got that money, they decided those cases favorably to DOTPF
in the hope of getting more business from DOTPF and they won't
get it if they don't decide cases in favor of DOTPF. He said
aside from the fact that allegation is awfully insulting as a
personal matter, it is simply wrong. First of all there had not
been a single example cited in the letters to the committee or
the correspondence to the committee of what rulings had been made
by any hearing officer, including himself or anyone else that
were incorrect. He explained:
I'm sure that it is believed that these decisions were
incorrect but I can't respond to any allegations
because none have been made. There's just simply an
inference that since the contractors ask for a lot of
money and we were paid money to decide it that we must
have been biased and therefore the contract that we
made erroneous decisions.
In fact however, the two major cases that we're talking
about here, the Tustumena and Terror Lake Project, were
both taken to court after I decided them. And in the
Tustumena's case, the multitude of decisions, which
were made in that case both on the affirmative claims
and the counter claims were affirmed 100% by the
Ketchikan Superior Court. The contractor then took one
remaining claim to the State Supreme Court, which ruled
against the contractor five to nothing.
The second claim was the Terror Lake Project. That
involved the excavation of the tunnels at Kodiak and it
lasted several weeks. The decision was made. I gave
the contractor slightly more than the contracting
officer had recommended to the contractor, which was a
substantial amount of money. But that also went to
court and was upheld in its entirety by the Superior
Court in Anchorage. So you know, when the inference
here that because you get paid money, you know, you are
going to make a decision for the commissioner is simply
erroneous.
MR. GROSS explained if you get hired by the Commissioner of DOTPF
to do a job, you do not do a good job for him by giving him a
biased decision. If you give him a biased decision it goes to
court. People inevitably will take it to court and they will
spend a fortune and it will end up being thrown back to the
commissioner. He will have to have another hearing and the state
will spend a fortune and the contractor will spent a fortune and
nobody benefits. You do your best job for the commissioner if
you do an honest, fair job, if you do what you think is right so
you know if it does go to court it will be upheld in court so the
commissioner will not have to do it again. He said that's why
the commissioner hires you, not because you do something that
gives the state money but because in the end you do something
that holds up and does not have to be done again.
He said he understood the concern of the people at the meeting
but he told them, from the inside, they do not act in a biased
fashion, they try their best. They make honest mistakes of
course, everybody does. He assured them that he had never been
asked by a DOTPF member to bias a decision nor had he ever tried
to. It would be in no one's interest, including the Commissioner
of Transportation, to give a biased decision.
MR. ANDY ROMINE said he was Operations Manager for Swalling
Construction and had a statement about the one claim where they
actually went through the complete process. It was a claim for a
project in Ketchikan and involved Susan Burke, part of the firm
Mr. Gross was talking about.
The claim was submitted in September of 1997 for an amount of
$234,000. They got a hearing officer's decision on November 2,
1999, 25 months later and were awarded roughly $46,000. They knew
the amount of the claim would not allow them to have a full time
attorney so they did most of the claim documentation and the
writing of the claim themselves and then sent it to their
attorney for review. They did hire an expert witness to take with
them to Juneau when they went to try the case. The direct costs
to them were $55,000. In the course of trying to negotiate or
provide information to the hearing officer they calculated at a
later date their total costs. They included their in-house time,
costs to go to Juneau and airfares,and it had cost them $175,000
to litigate that claim.
MR. ROMINE said there are very specific requirements in the
contract of when they were supposed to notice the state when a
claim arose, when they were supposed to provide the documentation
of the claim and how long they had to appeal decisions. They
followed every step of the contract. He was surprised the state
had the same requirements but in that case the state was
typically 60 to 90 days late on every one of their decisions. He
said if you take the number of days the state and contractor are
given for the process, it is not that long, but they had no
leverage to force the state to make a decision. He said Swalling
kept on asking and asking and trying to go along with the
process.
MR. ROMINE said they were not attorneys and they learned a few
lessons in that hearing. They had a two-tiered case. It was a
painting project and one of the claims was for excessive amounts
of paint and one was for excessive amounts of rust. They did get
a favorable decision by the contracting officer on the amount of
extra paint on the bridge. They wanted to appeal the decision on
the amount of rust on the bridge. He explained at that point it
was simply a matter of convincing somebody that yes, extra paint
would hide excessive rust. The hearing officer allowed the state
to throw out their contracting officer's decision, which threw it
back to zero. They had to start all over again. They had to
prepare a case based on the whole process. He said they had
spent all the time, effort and money to get where they were and
they just wanted to focus on that one thing. He said he is not a
lawyer but it just really surprised them.
He said the point was, when attorneys are talking people cannot
do this by themselves. Somebody brought up a law book that was
ten years old and there was a statement in there, they learned
the lesson that they were never going to know those things. In
this process, the way it is now, they have to have attorneys.
MR. ROMINE said the second issue was Swalling Construction had
been in business for 55 years and had done a number of DOTPF
contracts. That had been the one time they had to go to a hearing
officer. They were currently involved in two cases. One had been
appealed to the hearing officer and they were selecting a hearing
officer in that case.
The other case is potentially going to be a claim. He brought it
up because at the beginning of the meeting, DOTPF indicated they
try very hard to work with the contractor to settle these issues.
He said this case in Kodiak simply involves what part of a design
and construction code is applicable to doing temporary work for
that construction project. They presented a lot of information
to DOTPF and asked them a week and a half ago for a 30-minute
meeting to discuss their claim. Essentially DOTPF responded by
saying they did not have the time to meet with Swalling. They
asked specifically for the name of the person that decided they
did not have the time to meet and DOTPF had not provided that
name.
MR. ROMINE said they are trying to get out of the claim process.
They negotiated with DOTPF for two or three months. DOTPF
offered them roughly $250,000 though Swalling had asked for
$388,000. That was the money they needed without going to claim.
If they go to claim and follow all of the procedures it is
probably going to be around $700,000.
He said two months into the negotiations they got a call from the
project engineer who said DOTPF was taking the $250,000 off the
table and would give them $125,000 because that is what it would
cost them to litigate the claim. He said that is not a fair
negotiation. At that point all they asked for was 30 minutes of
time and DOTPF refused to meet with them.
MR. JERRY KOENIG said they requested formal responses to their
correspondences to the state with the hope of having them for the
meeting. This issue had been hanging out there with no response
from the state since October or November. They carried on
negotiations until they reached the impasse and received the
phone call from the project engineer. Through those negotiations
they had asked for the 30-minute meeting point blank. He quoted
DOTPF: "The powerful people in the department don't have time to
be dealing with these issues."
MR. KOENIG said if this goes to claim they are probably looking
at $200,000 or more in expenses. He said as a contractor they
had a tough decision and had done a cost analysis and sent those
to the state but had no response to date. He said it was a very
frustrating process.
TAPE 02-08, SIDE A
MR. KOENIG said the state acknowledged early on it had made some
errors in its initial appraisal. Subsequent to that it did not
change its position but said it was wrong there but then it moved
to another code. Swalling solicited an independent engineering
firm to give them an interpretation. They handed the independent
engineering firm the documents and did not explain where they
were at but asked them what their interpretation was of their
approach to the problem. The firm came back and reaffirmed that,
in their opinion, Swalling was in compliance with the contract
document. Swalling took that one step further and had the firm
to go back to the code agency, which in that case happened to be
AIFC, and asked what the intent of this code was when it was
written. AIFC came back and reaffirmed that Swalling's
interpretation of the code was correct.
MR. KOENIG said to date the department had refused to recognize,
acknowledge or respond to that information. He felt like they
were in a battle of coercion and attrition and their option was
to commit legal funds. They are in the construction business not
the litigation business. They want to reach an equitable
resolution on this issue and would like a voice, would like
responses and would like to have an opportunity to present their
case to the people making these decisions. He did not think his
request for a 30-minute meeting with department officials was at
all unreasonable.
MR. EBERLE said all this was new to him. This was the first he
had ever heard there was a problem out there that was not being
addressed.
He said one of the principles and one of the things he was going
to speak about earlier was the formal process set out in the
contract. That needs to be there and there needs to be some
tweaking.
There is an informal process, which they advocate very strongly
in the department, and it is called partnering. Basically it is
treating everybody honestly and fairly on a business level. They
actually have formal meetings before the contract starts. They
agree to an informal process of elevating issues so they don't
sit at the lower level and not get addressed. They literally
create a hierarchy ladder whereby if it is not getting settled in
a certain amount of time at that level they pick up the phone and
talk to the people at the next level. You get the next level of
the contractor and the next level of the department involved. If
that doesn't get resolved, they have so many days and the next
level gets involved and it ultimately gets to the contracting
officer.
MR. EBERLE said he was very disappointed to hear that this was
perking at that low level and that no one had picked up the phone
and called Gordon Keith or himself to jump in and see what was
stalling the process. He said this was the first he had heard of
it and that is very unfortunate because they are strong advocates
of solving the problems at the lowest level and, if they can't
solve them, admit it and elevate them to the next level so they
can get solved. He thought contractors as well as his own
people, need to recognize that if they can't get a decision,
elevate it. He thought they had fault on both sides of the table.
CHAIRMAN COWDERY said he had been involved in the partnering
concept and had been the coordinator. He believed the little
problems grow really big in a hurry if they are not elevated. It
is human nature that nobody wants to admit they cannot settle a
problem and have to give it to their superior.
MR. JIM PSENAK said he had looked at the information there and
thought they were there to look at the process. He said, "It
needs to be looked at more deeply than what you guys over there
on that side of the table are looking at." He said first off the
claims appeals are not really kept within these time frames, just
like the fellow from Seward's Shipyards said. His case was
listed as having February 6, 2001 as the date of receipt of
notice from DOTPF. He noted:
You know I started out in this claims process in April
of 1999. I got a decision from the engineer in June
nd
2 of 1999. I filed my appeal with the contracting
rd
You go through this 7 days if you and the engineer
can't settle it. Then you got 14 days to file your
claim. The engineer has 60 days to make a decision.
You got 30 days after that to file to the contracting
officer. The contracting officer has 90 days to make
an answer. You got 14 days to file after that to go to
appeal to the hearing officer.
After that it gets to that point there is no time
limits. That's the end of it. The hearing officer can
take two years if he really wants to. He can do
anything he wants to up until that time that the
hearing is done. Once the hearing is done then you've
got 90 days to have a decision answer to the
contractor. I don't know what's going to happen in my
case because you're not gonna make your 90 days and I
don't know where we're gonna go from there then.
MR. PSENAK explained they had his case down on their list as only
taking a short-term one-year period. He was almost three years
into the process on his case. The contracting officer received
rd
his information July 23 of 1999. The 90 days gave him until
rdth
October 23. On October 12 the contracting officer sent a letter
that said Mr. Psenak had not sent all the information they needed
on the claim so the contracting officer wanted another couple of
months. He asked the contracting officer what information he was
requesting. The contracting officer sent back a list of requested
information that had already been listed on the claims appeal.
Everything he sent the contracting officer was already there.
MR. PSENAK said he found out the contracting officer was moving
the state offices during that summer of 1999 and did not have
time to make that decision so he wanted more time. By that time
they did not make the decision because they were going to
supplement the claim with additional information they found.
They were going to make one total decision. It drug out until
January or February of 2001. Then Mr. Psenak finally got the
contracting officer's decision.
MR. PSENAK said he immediately filed for the hearing officer.
th
The hearing officer was appointed March 27 of 2001 and it was
nd
currently February 22 of 2002, almost one year later and he was
still not done. He said DOTPF had all those deadlines in their
statutes. He referred to AS 36.30.620 (c) and read, "The time for
issuing a contracting officers decision may be extended for good
cause by the Commissioner of Administration." He said there was
not a Commissioner of Administration letter anywhere from any
agency that said they wanted to extend his contracting officer's
time. The letter came from the contracting officer himself. He
read further from the document, "If that decision is not made by
the date it is due the contractor may proceed as if the
procurement officer had issued a decision adverse to the
contractor." [Sec. 36.30.620 (e)] He said he appealed a second
time to a second contracting officer and gave him all the
information and 90 days later the second contracting officer had
not made a decision. Mr. Psenak sent a letter to DOTPF and they
told him he had to wait until the contracting officer made his
decision, which came a couple of months later.
MR. PSENAK said he was reading the state statutes that
contractors have to go by. His claim was with the Department of
Natural Resources (DNR) but he said DOTPF makes administrative
decisions for DNR claims. He said in the case involving Linder
Construction, DOTPF had said they were not DOTPF employees, they
were ADF&G employees. He said that should not be relevant here
due to the fact that DOTPF makes the administrative decisions on
these claims.
MR. PSENAK read from the statute, "After the end of the hearing
involving a procurement of construction contract the decision
shall be made within 90 days [indiscernible] to all parties."
After the 90 days you can go to a judicial appeal. He said it did
not say in the statute what happens after the 90 days if there is
no decision. He asked what action was taken against DOTPF if they
did not make a decision. He said there is absolutely nothing that
forces DOTPF to do anything in any of these state statutes. If
they miss their deadline they just miss the deadline. If a
contractor misses his deadline his claim is gone.
MS. HENRIKSON said he forfeits it.
MR. PSENAK explained the contractor has 14 days to file after he
can't make a settlement with his engineer on the site. He said
after arguing with the engineer for seven days about a particular
decision or problem, you have to hurry up and make a claim to the
same person you could not make a decision with. He said you know
the engineer is not going to come back and change his mind.
After you get this engineer's decision it goes to the contracting
officer. He asked Mr. O'Brien how many times the contracting
officer went against the engineer's decision.
He said he had multiple hundreds of thousands of dollars in his
claim he could not recoup because attorney's fees are not legal
for these claims. He said maybe interest could be recouped and
maybe not. They did not know whether that would ever happen. He
said no money ever came out of any DOTPF, DNR, or ADF&G
employee's pocket. It all came out of the contractor's pocket.
He said the attorneys did the best job and established the case
very clearly.
MR. PSENAK said the thing that was so funny about his case was
DNR admitted it made a mistake on the design. Everyone from the
designer to the project manager agreed there was a mistake. He
said he caught them physically changing a computer disk he had
given them for a pay item and they admitted they changed it.
Thirty days after his project was done they terminated his
project. He said that was the way it had gone since the beginning
and he was sitting there almost three years later. It started
nine months before that but the engineer's decision came out
three years ago.
MR. PSENAK concluded that the process involved was skewed towards
DOTPF and the state. DOTPF had no problems not meeting deadlines.
He bet they would find the contracting officers' decisions did
not go against the engineer's decision in more than one out of a
hundred cases. The contractor has no options because DOTPF has
all the options.
MR. LARRY SMITH said he was the President of D&L Construction
Company Inc., a small contracting firm that has been in business
in Alaska for 20 years. They were involved in a claim with DOTPF
over a project called the Church Road Upgrade. It was a four-mile
segment of state highway that was a federally funded project in
Wasilla in 1998. They successfully completed the upgrade and had
a final inspection in October of 1998. They had some problems on
the project with utilities and went to claim. They were very
fortunate in that they filed the claim in December of 1998 and it
was resolved within eight to nine months. He said a number of
things existed within the claims process that were abusive.
He thought the contracting officer's decision was a joke because
in most cases the contracting officer did not even write the
contracting officer's decision. In his case the contracting
officer, Mr. Eberle, did not draft the decision. The assistant
attorney general who defended the state against their claim
drafted it. Then Mr. Eberle simply signed it.
MR. SMITH said their original bid for the project was $2.6
million. Changes during the project brought it up to about $3.3
million. They collected $772,000 on an initial $1 million claim.
He said their hearing officer awarded them everything they asked
for except $50,000 in claim preparation costs, which he was not
allowed to award because of statute.
After the hearing officer's decision, it went to the
commissioner's office. The commissioner's office somewhat
arbitrarily decided they were going to knock them down $200,000.
The hearing officer awarded them $922,000 and they collected
$722,000. There is about $92,000 still sitting in prejudgment
interest his firm had not been able to collect. He said last year
the legislature passed legislation allowing DOTPF to pay
interest. They tried to get that legislation to be retroactive so
it would cover their claim from 1998. That was impossible so they
still were unable to collect the interest on the $722,000.
MR. SMITH said the major problem is there is absolutely no
incentive for DOTPF to settle claims because it is not paying for
anything. No matter what it does, it goes to the Federal Highway
Administration on bended knee and basically gets reimbursed for
everything. DOTPF is not accountable for anything in the entire
process. They found during the discovery process in their claim
that DOTPF used a document to encumber funds from the FHA. DOTPF
sends this document down to the FHA asking for additional funds
because of overruns here and there. He said their project manager
sent documents to the federal highway people in Juneau asking to
encumber funds for the additional costs of the same overruns D&L
was claiming. They then turned around and refused to pay D&L for
their claim until they went through this hearing process.
He said he did not want to come just to complain about the
process but it is full of abuses. He empathized with Mr. Psenak
and the other contractors who have been in the process for years
and years. He said there are other contractors out there
suffering from these same problems. The process absolutely needs
to be changed and DOTPF needs to be made accountable for the
things it is doing in this process. The contractor posts payment
bonds and performance bonds for the risks they take. DOTPF people
are not bonded and maybe they should somehow bond themselves or
the state should bond them for the abuses they are perpetrating
on the construction industry.
MR. SMITH said arbitration sounds great but they went through
arbitration with DOTPF in their claim and spent 12 or 14 hours
sitting in an office with their lawyers and DOTPF people and an
arbitrator. It was a total waste of money and a total waste of
time. DOTPF came to the arbitration saying there was no
entitlement for their claim and no money and they walked out 14
hours later saying the same thing. He said they did not arbitrate
in good faith. It was simply a tactic they used to delay the
hearing officer process and to cost the contractors more money.
They paid for half of the arbitration but D&L was out a few
thousand extra dollars.
He said he heard Mr. Eberle talking about the partnering process.
He said they partnered with DOTPF on the Church Road Project and
he still felt the stab wounds in his back from that partnering
process. This is a real problem especially for small contractors.
D&L does $2 to $3 million worth of work a year and for them to
wait 18 months to collect $722,000, most of which they paid to
the attorneys and the bonding company. They were lucky to have
survived. He hoped that the committee would spend more time on
this issue and thanked them for what they were doing. He hoped
they understood it was a very big problem in the state and it
needed to be cleaned up.
CHAIRMAN COWDERY said that was the purpose of having the hearing.
He hoped Mr. Cattanach would come back to the committee and help
them work to correct the problem. He had worked with the
commissioner in the past when the Governor wanted project labor
agreements at the airport. He talked to Commissioner Perkins and
had DOTPF by the budget. He told him he did not think that was
fair and did not want to see it. Commissioner Perkins said to
give him six weeks and he did solve that problem.
He talked about the St. Mary's Project, which Senator Wilken had
brought to his attention. He was promised if he would hold off on
the legislation that had passed the Senate, they would spend the
summer in negotiation. That bill was still hung up in the House
and he could not shake it loose. He said it is fine to work
things out but he liked to have something in statute.
MR. STEVE DEHART said he was a small contractor in Kodiak. His
comments had to do with the bid protest process and were directly
in line with what some of the other people said. He protested a
bid opening and got a favorable response from the hearing officer
and it currently sat in Mr. O'Brien's office. The problem was
they needed a decision because it had tied up their bonding for
the previous six months and the only response they got out of Mr.
O'Brien's office was he had 90 days to decide this. He added:
What is going to happen, which I was informed yesterday
by the attorney that represented the state, is he is
going to undermine this and circumvent the process by
awarding the contract, him and the procurement officer.
And the $20,000 that I've spent in the last six months
and the hundreds of hours I've put in to see this get
to the commissioner's office is all going to be
undermined by an attorney.
He did not feel they had any control over the attorney or there
was anything they could do to stop this and that needed to be
changed. The attorney represented the state but had no interest
in a fair decision.
MR. DAN LIBBEY said he was with the law firm of Oles Morrison and
Rinker and Baker and also there on behalf of the Alaska Chapter
of Associated Builders and Contractors (ABC). He stated ABC's
position of complete support of the upgrade of the administrative
claims process. They also adopted the position articulated in
the room particularly by Mr. Baker and Mr. Brady that an
arbitration scheme would be a very effective scheme to implement
into the process. If an arbitration scheme is not included as
part of the statutory framework to the upgrade of this overall
process, then the hearing officer process should be revamped to
reflect an unbiased procedure that put a good deal of
accountability for the decisions that are made.
He said it would really be nice to see the overall claims process
scheme address delegation of authority. If DOTPF delegated
authority to ADF&G and DNR the same claims process should apply.
The claims process would be the same no matter what state agency
was delegated authority. The handling of small claims and the
settlement of small claims should also be addressed in that
statutory framework.
MR. LIBBEY said if there is an arbitration scheme suggested
statutorily then the inclusion of interest in the scheme should
be addressed. The October 2001 statutory interest provision in
the state procurement code addressed interest in controversies
raised to the procurement officer, which are then raised on
appeal to the Commissioner of Transportation and then appealed to
the Superior Court. He did not think it specifically delegated
otherwise. There was sentiment that prejudgment interest should
be allowable in claims against DOTPF but the department had taken
a contrary position in the past. This statutory framework had
remedied that but if an arbitration scheme was to be implemented
statutorily then it may be appropriate to include a prejudgment
interest clause with that so there would be no real issue. That
could be a guidance of the overall upgrade of the administrative
claims process.
MR. LIBBEY said in looking at the overall upgrade, the discussion
of attorney's fees could be implemented. The way the civil rules
of procedure are laid out in the State of Alaska, attorney's fees
are not fully awarded. They are based on the level of contesting
of the dispute, whether it is settled immediately, whether it
goes on into the discovery phase, whether it is settled after
trial. Depending on the level, there are different percentages
that are collectable.
He thought Civil Rule 68 should be considered in this context
because it would address accountability and it would also address
the settlement of claims. That rule is in place and provides what
is called the offer of judgment. If at the very beginning of the
claim a party suggests a settlement number and that number then
is accepted the claim can be resolved but if it is rejected the
claim goes on. The party that prevails at trial by 5% greater
than the offer is then entitled to 75% of their attorney's fees
if the offer is made at the initial point. If the offer is made
halfway through the claims process and the party prevails by
greater than 5%, then it is a 50% award of attorney's fees. This
really gives the incentive to settle the case early because the
earlier you settle it, the less likely you will be exposed to the
higher percentage of attorney's fees if it does go to full
adjudication on the merits. He said it is used in the Superior
Court quite often and would be a very valuable tool for
settlement and for accountability both. That could be a
consideration that could come into the statutory framework in
upgrading the claims process.
SENATOR TAYLOR said he appreciated the comments on offers of
judgment. Rule 82 did not provide adequate compensation. He
thought anyone who had practiced law for any period of time
understood it was token compensation. He said a major insurance
carrier in the State of Oregon, as a company policy, refused to
pay any claim under $1000 no matter how valid. They knew it would
cost people way more than that to get an attorney and go to court
and sue them. That caused the Oregon State Legislature to pass a
law that if a company refused to settle and it was a valid claim
the party would recover full attorney fees and double the amount
at issue. He said when the tort reformers came along they killed
all of that in Alaska.
He said it was fascinating to be discussing ways of finding
incentives for settlement. There is no incentive greater than a
contingent fee agreement. When every attorney in the room is on a
contingent fee agreement, all of a sudden there is no benefit to
running up a big tab against somebody. You don't have to run up
$50,000 to $100,000 worth of debt against the client before you
are going to settle his case. He said it was not just DOTPF that
has been dragging its feet. He related a case involving the MRI
machine at Bartlett Hospital and the Department of Health and
Social Services as an example of another agency doing the same
type of thing. He said legislators know this is going on because
they keep hearing these types of complaints.
SENATOR TAYLOR said he thought there was a way to get this
wrapped up and resolved. He applauded Dick Cattanach's efforts
and Mark O'Brien's efforts for the conscientious way in which the
people within DOTPF had been trying to find a way out of the
morass. He thought the way out was to use something similar to
what they use when they adversely take, through condemnation,
someone's property. He explained their forefathers realized if
the state came in with all it's power and put I-5 through the
middle of Chairman Cowdery's house they had to offer him a fair
amount for his house. He explained the fair system they set up.
Chairman Cowdery can bring suit against the state and if he can
show that he can beat the state's offer in front of a jury by
more than 5% he would get actual attorney's fees plus his
judgment plus prejudgment interest. In that type of rare instance
people got fully compensated if they lost their house. They do
that in condemnation cases to keep the power of the state from
being abused on the property owner. They could go to a system
that would do that. They could go back and try to repair the
damage done to Rule 68 and the tort reform movement.
SENATOR TAYLOR explained Rule 68 used to say offers of judgment
are offers of judgment and if you can go into court and beat that
offer of judgment you get 100% of your attorney's fees. It was
the insurance industry that came in through the tort reform
movements and said it did not like 100%, they wanted 75% at one
stage and 50% at another stage. Every time you whittled it down
from 100%, you took the incentive to settle out. If they want
strong incentives they can write strong incentives back in. He
said he was looking at all departments, not just DOTPF.
SENATOR TAYLOR said he liked the concept of each side making an
offer and then when they reach some finality you prorate it back.
He was not sure how well it would work but it may be another
workable mechanism.
SENATOR TAYLOR said he believed the rest of the construction
industry, those not dealing with state agencies, found a solution
to all this years ago. The construction industry found out a long
time ago they could not afford lawyers and they could not afford
the time to go to court. They could not have a huge ten story
building all tied up for five or six years while they worked
their way up to the Supreme Court for a decision on whether the
guy who was building the building was right or not. They invented
arbitration and in a month they get a decision. He thought
binding and mandatory arbitration would take care of the big
cases and the little contractor also. He asked, if it works for
the rest of the construction industry and for the private sector,
why it wouldn't work for the state. He said those were avenues
of approach that had been successful for other people in the same
circumstances. He said the Transportation Committee should really
take a look at introducing legislation to accomplish that. He
asked the participants at the meeting to share any additional
ideas they came up with. He said if they could come up with
something it would be beneficial to all parties and especially
the state in the long run.
SENATOR WILKEN said he had five things he would like to touch on.
He had two constituents come to him in the fall who were on the
rd
other end of the problem. They had a road project on 3 Avenue
in Fairbanks. Constituent B has an eight-store mini-mall and
Constituent A has a little printing shop with three employees.
Both came to him independently and said the state was beating the
hell out of them. The state wanted to take their land and was not
giving them fair value for it. They had been through all the
hearings and the lawyers and they did not know what to do.
Senator Wilken told them he did not know about this so he went
off to Juneau with this as a issue. Senator Torgerson had the
same issue and as they were talking it came up. Senator Torgerson
introduced SB 278 and he was one of three co-sponsors. SB 278
would require the state to make a better effort to try to have
some resolution.
SENATOR WILKEN was in the print shop three weeks earlier because
they were printing his survey. He told Constituent A he had a
bill going and it would raise the level of the issue.
Constituent A said he had settled. Senator Wilken asked him what
had changed in the last four months. Constituent A said he could
not afford it. They just beat the hell out of him. When Senator
Wilken got back to Juneau he called Constituent B who said he was
going to court. He would not breakeven if he won but those
bastards were not going to beat him. Senator Wilken said that was
the 2% he was there representing. He thought they ought to be
proud of the 98% but it was the 2% like those speaking at the
hearing and Constituents A & B that he was really there to talk
about. He said they should not be placed in that position in
those kinds of issues.
SENATOR WILKEN said the letters between Mr. Brady and
Commissioner Perkins are entertaining and they could do what they
wanted with them but obviously there were two sides of the story.
He referred to the middle of page 2. He was disappointed in the
statement and suggested DOTPF change its attitude. He read from
the letters, "We negotiate for long periods of time," which he
said Mr. Brady asserted. He continued:
The final sentence there says, and I think to my
Constituents A & B - 'The contractor always has the
option to break off negotiations and pursue their
claim. The responsibility for prolonged settlement
negotiations is shared equally by both parties.' I just
simply don't see it that way. I would suggest that
sentence ought to read, 'the responsibility to minimize
prolonged settlement negotiations is placed upon the
State of Alaska just because of the resources they
have.' I think we, as the state should acknowledge that
we're fighting and, not fighting, we're negotiating
with small business people A and B and it's not their
responsibility to carry the issue forward.
SENATOR WILKEN referred to arbitration. He asked Mr. Libbey in
the scheme he mentioned whether he envisioned a traditional split
- the baby arbitration - or would he envision a final last and
best offer in these types of things.
MR. LIBBEY said he thought the scheme could work as Senator
Taylor indicated. It would be a last and best offer if you
rejected it and it went on into arbitration and prevailed by
greater than 5% then it would be a full and actual attorney's
fees award. It really gave that high incentive for settlement.
It really allowed for parties to very objectively look at their
positions and think realistically.
SENATOR WILKEN asked if that worked in the construction business.
AN UNIDENTIFIED SPEAKER answered that it does.
SENATOR WILKEN said he heard the comment about attrition through
the department. He said all of them in the legislature heard that
comment, not only on this issue but other issues as well. He was
glad Mr. Brady had brought attrition up and he thought it was a
problem in DOTPF and they have huge capital budgets funded by a
lot of federal money.
SENATOR WILKEN asked Mr. O'Brien for the status of his report and
when it was due. He wanted to know if the following list would be
included.
· arbitration
· hearing officer
· accountability
· small claims resolution
· missed deadline on behalf of the state
· delegation of authority.
MR. O'BRIEN answered that all of the items Senator Wilken
mentioned were discussed in the paper with the exception of
delegation of authority. He said he had some comments on that and
it was being addressed in a different way outside of the process
they have with AGC. He said the other issues would be addressed.
He and Mr. Cattanach had a copy of the report and had agreed to
take it to their respective parties and gather input from their
departments and their attorneys on this issue. He said this is
the opportunity for both sides to go back and sit down and
discuss this with their folks.
TAPE O2-08, SIDE B
AN UNIDENTIFIED SPEAKER said when we talk about modification of
legislation we are talking about changing the State Procurement
th
Code. He did not expect that to happen between the 15 of March
and the end of the session. That meant this was something they
could entertain over the summer and have hearings and look
towards introducing legislation the following session. He said
they would look for advice.
CHAIRMAN COWDERY agreed they were getting down to the wire. The
last day for the individual filing of bills was last Tuesday.
Committees could introduce bills. Major legislation was often not
completed in one two year period. He said that was why he
appreciated all their help. He informed them Senator Taylor is
Chairman of the Judiciary Committee and they would like to gather
all the information and depositions. They needed everyone's email
so they could email information to them. DOTPF would make a good
effort and hopefully in seven to ten days this committee will
have the list of claims information and he will share that with
them. He told Mr. Cattanach to work with his staff and Senator
Taylor on the necessary changes to meet their objective of making
this work better.
AN UNIDENTIFIED SPEAKER said arbitration, which he had not
thought about seriously until Senator Taylor suggested it, is a
creature of agreement. If there is going to be some delay in
going through this hearing process to change the procurement code
there is nothing to stop the department from just, across the
board, telling the contractors they are willing to arbitrate with
them right now. That could be implemented by the time the hearing
process is completed. He said they probably have a couple of
positive examples of arbitration results, which ought to be
really meaningful in assisting the whole process.
SENATOR TAYLOR said it was mentioned earlier that legislation is
already on the books that allows for arbitration as an option. He
would encourage the department to look at that. He was concerned
they were going to waste another full year or year and a half
before they would have some finality available for those people
contemplating additional contracts. There is another building
season coming up and hopefully contracts were going on the street
for bid. He wanted people to feel very comfortable and know there
is a quick, speedy and fair resolution process. That is what they
are trying to build. He said they may not be able to accomplish
legislation this year but they ought to get the rough parameters
of a bill in and filed so they can have some hearings on them and
maybe even carry on some hearings during the interim. He said he
wanted to have a rough draft of the bill by mid March.
MS. HENRIKSON said something no one talked about was holding the
hearing officers' feet to the fire. She said her hearing officer
made his findings of fact and conclusions of law but he did not
do the math. There were experts on both sides that said what the
issues were worth. The hearing officer did not do any of that and
it rendered his decision worthless and if you are the contractor
you are held over the barrel. You get the decision in January and
the legislature is getting ready to meet. You have to decide
whether you want to settle and get it funded while they are in
session or wait another year for the next session.
She said she should be able to participate in the lawsuit going
forward against Montgomery Watson and the state should not get a
windfall when they would not even pay her attorney fees.
MR. O'BRIEN responded to Senator Wilken's question about
delegation of authority. He said the department had just
instituted what is called a contracting officer warrant system.
It set up levels of delegation of authority, minimum training
requirements and minimum experience requirements. It will be a
formal system and has been adopted by policy. By July they will
all have to have intern warrants. They recognize there is a need
for training and there are issues out there and they are taking
steps to address them.
He said the numbers don't support the idea that the number of
claims has increased. He said he had records going back to 1988
and they averaged three claims a year and it has not changed.
CHAIRMAN COWDERY said they averaged three claims that are
disputed.
MR. O'BRIEN said primarily most of the discussion is focused
around this hearing officer arbitration process. He said he was
talking about the claims that would be going to arbitration.
SENATOR TAYLOR said arbitration was not really a big major step
for them to make because there are so few cases. He thought they
could just implement arbitration. He said it would be good for
the Governor to have Commissioner Perkins implement arbitration
quickly and all of a sudden a whole bunch of problems would
disappear. He suggested either binding arbitration so nobody can
appeal and it is final or either side can go to court but there
should be a disincentive to going to court.
CHAIRMAN COWDERY adjourned the meeting at 12:37 p.m.
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