HOUSE BILL NO. 139 "An Act providing an exemption from the state procurement code for the acquisition of investment- related services for assets managed by the Board of Trustees of the Alaska Permanent Fund Corporation." Co-Chair Wilson reported that the committee had wanted to better understand the procurement process during the prior discussion on HB 139. 2:39:12 PM LINDA POLK, CONTRACTING OFFICER, DEPARTMENT OF ADMINISTRATION, introduced herself. She relayed that she was prepared to answer questions from the list of questions she had received from the committee. She answered the question regarding when the procurement code was established. She indicated that the code in AS. 36.30 was effective on January 1, 1988 and was based on the American Bar Associations (ABA) model procurement code. The ABAs code was established in 1979 after extensive work. It was one of ABAs most successful projects. She addressed a question regarding code revisions. She indicated that the ABA code was revised between 1997 and 2000 with input from the National Institute of Government Purchasing (NIGP) and the National Association of State Procurement Officials (NASPO). She furthered that SB 12 Public Procurement [CHAPTER 59 SLA 13] adopted on June 26, 2013 modernized AS 36.30. She listed some of the changes to the code; i.e., allowing electronic bids, raising the small procurement threshold, bidders' preferences were consolidated and simplified, and the Alaska business license requirements were modified. She elaborated that initially, an Alaska business license was required to submit a proposal, which delayed vendors submissions and reduced competition. The change required an Alaskan license once the bid was awarded. She turned to why the procurement process took so long. She delineated that small procurement ($100 thousand or less) was completed in a matter of days and up to a few weeks. Formal procurement took 3 to 6 months and sometimes longer. The procurement requests were required posting on the online public notices system for 21 days to ensure fairness. A procurement officer had the ability to reduce the public notice time if necessary. She furthered that bids were evaluated, and negotiations were conducted during the 3 to 6 month procurement period. She noted a question concerning the benefits of a procurement code. She delineated that the code increased consistency across agencies, informed the vendor community about the states expectations, and provided equal treatment and fairness to vendors. She added that the Alaska Bidders Preference fell within the procurement code and gave in-state vendors an advantage. The code offered transparency, encouraged competition, and resulted in the best value for the state. She addressed the final question that had been posed regarding what code benefits would be forfeited if the Alaska Permanent Fund Corporation (APFC) was granted the exemption. She remarked that the answer depended on the type of procurement. However, in general competition, transparency, justification, Alaska preferences, vendor protests, and public trust would be lost with the exemption. 2:44:50 PM Representative Carpenter asked if the whole procurement process had been evaluated for improvement purposes or were revisions addressed piecemeal. Ms. Polk responded that the code through the ABA was reviewed regularly. She noted that 16 states had adopted the code. She reported that the Department of Administration (DOA) did not regularly review the code but did make regulatory changes at times. Representative Carpenter asked about the 21-day review period waiver. Ms. Polk reported that the waiver was possible with any procurement under certain circumstances. She elucidated that an immediate need or very few vendors able to participate were reasons to shorten the public review period. Representative Carpenter asked if it was possible to achieve a 10-day waiver for the Alaska Permanent Fund Corporation. Ms. Polk indicated that there was pre-work that had to be done prior to posting but stated that a 10- day waiver was possible. 2:48:10 PM Representative Knopp asked about the difference between the small procurement process and the formal process. He deduced that the difference was the public notice period and the dollar amount of over $100 thousand for formal procurement. Ms. Polk responded that the small procurement process had 3 levels: $0 to $10 thousand allowed a direct purchase, $10 thousand to $50 thousand required 3 price quotes, and above $50 thousand required written quotes. She added that small procurement was exempt from any time frame requirements. Representative Knopp suggested that the state followed similar guidelines as local governments for small procurement. He asked whether the formal procurement process was implemented with purchases over $100 thousand. Ms. Polk responded in the affirmative. Representative Knopp asked how sole source contracts worked for the state and whether the contracts followed the small procurement process. Ms. Polk answered that the state maintained a sole source procurement process. She conveyed that for small procurements it merely needed the commissioners approval. Sole source formal procurements required approval by the agencys commissioner and the Chief Procurement Officer. She qualified that APFC was asking to be exempt from any outside oversight. Representative Knopp asked if the procurement officer's signature would be required. Ms. Polk responded in the negative and added that the AS 36.30 procurement exception exempted APFC from every code requirement. Representative Knopp asked whether the procurement officer could reject a sole source contract. Ms. Polk answered in the affirmative. 2:51:52 PM Representative Josephson purported that Ms. Polk had described the flexibility in current law. He asked her to repeat her answers regarding the minimum release time. Ms. Polk replied that the code required a listing on the Online Public Notice system (OPN) to be posted for 21 days. However, the timeline could be shortened if the procurement officer determined it was necessary. The officer had to place a written note in the file stating the need for the shortened period. The officer could shorten the time as needed as long as decent proposals were received. Representative Josephson noted that the committee had been given a list of allowable adjustments to the procurement code [APFC Legislative Initiative: Procurement Streamlining (copy on file)]. He asked what else could be adjusted. Ms. Polk replied that quite a few things could be adjusted depending on the scope of work required. She reported that there was no way to get around a 10-day protest period. She delineated that during the 10-day protest period, a Proposal Evaluation Committee reviewed the proposal. If the committee was quick, an approval could happen in a matter of days. However, sometimes the committee was busy, and review could take much longer. 2:54:26 PM Vice-Chair Johnston suggested that her question might be unfair. She voiced that some procurements were very technical and noted that Ms. Polk stated that a timely review depended on how busy the evaluation committee was. She asked if procurement backlogs existed. Ms. Polk responded in the negative. She alerted the evaluation committee when to expect proposals and requested the committee to dedicate the proper amount of time for timely review. Vice-Chair Johnston recalled Ms. Polk's testimony to Representative Josephson about the times the committee was busy and not as able to be as responsive. Ms. Polk indicated she had provided an example of what could slow the process down. She voiced that a procurement officer was in control of the procurement and an officer would disallow a committee to draw out a timeline for a procurement for one that had to be rushed. Co-Chair Wilson recalled that investment management contracts were currently exempt. She understood through Ms. Polks testimony that the 10-day exemption was not really an issue. Ms. Polk replied in the affirmative. Co-Chair Wilson asked how often a procurement was protested and required a new solicitation. Ms. Polk answered that a solicitation was called a draft RFP (Request for Proposal). Often, vendor feedback caused an RFP to be amended before the closing date. She mentioned that protests happened and caused the process to take much longer than planned. Co-Chair Wilson asked if the protest happened immediately after closing or at the end of the protest period. Ms. Polk responded that a vendor could protest a solicitation 10 days prior to the solicitation closing. The solicitation could be fixed prior to the end of the solicitation period. Co-Chair Wilson asked for clarification regarding protesting a sole source award. Ms. Polk indicated that any sole source award could be posted within 10 days. 2:59:37 PM Representative Carpenter asked for clarification concerning the 10-day period. Ms. Polk responded that a sole source contract was subject to the 10 day protest period. Representative Carpenter asked how long the sole source process took. Ms. Polk answered that it depended on how long the sole source justification documentation took and the required approvals by either the commissioner or both the commissioner and chief procurement officer. She maintained that small procurements could be approved within a day. Co-Chair Wilson provided a hypothetical scenario in which there was a small window of opportunity for the procurement. She deduced through Ms. Polk's testimony that the procurement process could meet a 10 day deadline and asked whether she was correct. Ms. Polk asked whether she was referring to an RFP or a sole source contract. Co-Chair Wilson answered that her question related to the bill and whether the process could be shortened from 54 days to 10 days. She recounted that APFC had to hire a third party and pay 20 percent of the investment profits to the entity in order to avoid a lengthy procurement process. She offered that none of the committee members wanted to lose 20 percent of the profits. Ms. Polk explained that merely shortening the public notice process did not shorten the entire process to 10 days due to the 10 day protest period subsequent to the state choosing the vendor. She replied that a formal solicitation could not be completed within 10 days. Co-Chair Wilson ascertained that the protest period was the essence of the bill exemption. She determined that pre-work prior to solicitation had to be completed regardless of the process and that exempting the appeal period was the crux of the legislation. Ms. Polk responded that she was correct. Co-Chair Wilson asked Vice-Chair Johnston to comment. Vice-Chair Johnston replied that she generally agreed with Co-Chair Wilson. She added that a highly technical sole source contract process could cause a delay. Co-Chair Wilson returned to the subject of sole source contracts which she thought mainly applied to the APFC. She asked how sole sourcing worked compared to procurement. Ms. Polk explained that APFC had to supply a justification regarding a sole source procurement. The procurement officer would examine the justification to ensure it met the sole source requirements. Her office typically approved them in the same day and the contract would be ready for the commissioner's signature. Co-Chair Wilson asked Ms. Rodell to testify. She wanted to understand whether the bill primarily addressed sole source contracts. She thought that there were two issues; formal solicitations and sole source contracts. 3:06:55 PM ANGELA RODELL, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND CORPORATION, explained that the bill only pertained to sole source investment related services and would no longer need the approval of the commissioner or general services prior to making an award. 3:07:41 PM Representative Josephson asked for clarification around the term "sole source." He wondered if it meant the contracting party needed to argue that the vendor was the only one available to perform the service. Ms. Rodell answered in the affirmative and furthered that when the APFC prepared the justification they had to explain why the vendor should be given the contract without having to go through the formal procurement process. If either the commissioner or chief procurement officer disagreed, APFC had to go through the formal procurement process. Representative Josephson asked if the exemption granted APFC cart blanch. Ms. Rodell responded that APFC would internally document the justifications for its selections and hiring. The corporation was subject to Legislative Audits and its own annual audits. She pointed out that the exemption applied to a limited set of procurements and was not a full procurement exemption. The corporation still preserved its justification process. The procurement would no longer need the approval of the commissioner and the procurement officer. Co-Chair Wilson asked why Ms. Polk stated that the process would be less transparent under the exemption. Ms. Polk responded that the solicitation was exempt from public notification. Vice-Chair Johnston asked if the ARM Board or the investment arm of the Department of Revenue (DOR) was required to go through the procurement process. Ms. Polk did not know the answer to the question. 3:10:37 PM Vice-Chair Johnston asked if Ms. Rodell knew whether the ARM Board had to go through the procurement process. Ms. Rodell responded that the ARM Board had a complete exemption. Representative Carpenter asked if the public notice period would impact APFCs solicitations. Ms. Rodell replied that it could prove problematic to enter into the investment if the investors discovered that APFC was seeking third-party advice. Sometimes the investments were highly confidential in cases of mergers, acquisitions, or initial public offerings. She indicated that if the corporation was telegraphing via a public notice that it was seeking investment advice, it could jeopardize the investment opportunity. Vice-Chair Ortiz wondered what percentage of the corporations total investments the exemption applied to. Ms. Rodell replied that the amount was roughly 12 percent. Vice-Chair Ortiz recalled her testimony that the earnings from the 12 percent of investments totaled 30 percent. She responded in the affirmative. Vice-Chair Ortiz asked what the benefit of the procurement exemption was. Ms. Rodell responded that part of the corporation's responsibility was to make the best investments possible by lowering the cost of investments and ensuring that the largest number of investment opportunities were available to the fund. The highest need was to ensure the fund performed optimally. 3:14:15 PM Representative LeBon asked whether APFC had lost some investment opportunities because of the procurement timeline. Ms. Rodell explained that when the corporation felt strongly about an investment, they had chosen an alternative route to secure the investment. However, when the corporation proceeded with the procurement process it was not as fervent about the investment to warrant going through an alternative process. Representative LeBon did not think many other states had something similar to the Alaska Permanent Fund. Ms. Rodell responded that there were about 10 states that had something similar and over the past 10 years the amount of countries with sovereign wealth funds rose from 30 to 60. She observed that awareness was growing regarding creating a financial asset from a non- renewable asset, which offered a tremendous benefit to the population. 3:16:14 PM Representative LeBon asked if she had a feel for whether Alaska had an advantage or disadvantage when competing with the other states for investments. Ms. Rodell retorted that Alaska had more of an advantage because of the age and size of the fund. She noted that North Dakota established its fund 6 years ago and that the fund was worth $6 billion dollars. The fund was run similarly to the Alaska Permanent Fund. Representative LeBon suggested the state needed to be competitive with the national and global market for the types of investments. He did not think the corporation was asking for the exemption if it did not believe that some investment opportunities could be lost. Ms. Rodell replied in the affirmative. Co-Chair Wilson RECESSED the meeting to a Call of the Chair. 3:18:23 PM AT EASE 4:12:25 PM RECONVENED Co-Chair Wilson discussed the process for the remainder of the hearing. 4:14:10 PM Vice-Chair Johnston MOVED to report CSHB 139(FIN) out of Committee with individual recommendations and the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. HB 139 was REPORTED out of committee with four "do pass" recommendations and six "no recommendation" recommendations and with one previously published zero note: FN1 (REV).