HB 239-PROF. SERVICES IN STATE-FUNDED CONTRACTS  9:16:45 AM CHAIR LYNN announced that the final order of business was HOUSE BILL NO. 239, "An Act relating to the procurement of architectural, engineering, or land surveying contracts funded by money from the state." 9:17:00 AM REPRESENTATIVE LINDSEY HOLMES, Alaska State Legislature, as sponsor, presented HB 239. She said currently the State of Alaska uses a qualifications based selection process when using its own money for state projects; the federal government similarly requires qualification based criteria when federal grants or other money are involved. Under HB 239, the process would be extended to state grants being used [for architectural, engineering, and land surveying] projects. REPRESENTATIVE HOLMES said when consumers search for a physician or lawyer, or when they shop for a vehicle, the first consideration is not price, it is experience and value. In the example of buying a car, she said a price is negotiated only after a vehicle with the necessary features has been found. Representative Holmes suggested the same process should happen when the state bids; once the state chooses the best company based on qualifications, it would then negotiate for price with that company. If that company will not give a price that is acceptable, then the state would go to the next company on the qualification-based list. 9:20:47 AM CHAIR LYNN commented that the information in resumes can be selective, and choosing from them subjective. 9:21:28 AM REPRESENTATIVE JOHANSEN asked if the ultimate focus of the proposed legislation is quality of work or cost savings. REPRESENTATIVE HOLMES answered it is both. CHAIR LYNN suggested that it is the responsibility of the state to include its expectation for a project in its request for proposals (RFPs). REPRESENTATIVE HOLMES said, "That depends." 9:23:17 AM MIKE COUMBE, Staff, Representative Lindsey Holmes, Alaska State Legislature, on behalf of Representative Holmes, sponsor, offered a summary of HB 239, as follows: It requires that state funded contracts be negotiated with the most qualified and suitable professional of demonstrated competence, also considering proximity to the project site. If those negotiations fail, the state funded contractor will negotiate with the next qualified professional, in order of ranking. Proposals may be rejected by the state contractor. Situations of public necessity are excluded from these requirements. Price can be considered, as long as the project evaluators are registered professionals. And this does not apply to contracts incorporating both design and construction work. 9:27:06 AM MR. COUMBE, in response to Representative Johansen, clarified that the bill addresses all contracts in which the state invests. REPRESENTATIVE JOHANSEN said if the intent is to include anything engineered in the state, then that will raise a lot of questions. 9:28:50 AM REPRESENTATIVE HOLMES said she would research that issue. 9:29:01 AM REPRESENTATIVE SEATON expressed concern about including land surveying, because "it's done for numerous things." He directed attention to a sentence beginning on page 1, line 6, which read as follows: If a contracting person procures architectural, engineering, or land surveying services for a state- funded contract, the contracting person shall, when selecting the contractor, negotiate with the most qualified and suitable professional person of demonstrated competence to perform the services. REPRESENTATIVE SEATON said that sounds like the RFP process would not even be used. REPRESENTATIVE HOLMES deferred to Mark O'Brien for an answer regarding RFPs. She said licensing is still very important. 9:32:05 AM REPRESENTATIVE SEATON said it does not sound like there would be any real cost constraint, as long as negotiations are made and there is enough money from the state for the project. REPRESENTATIVE HOLMES responded that "this language" is the same language as that which applies to fully state-funded projects. She deferred again to Mark O'Brien. 9:33:41 AM CHAIR LYNN questioned whether the system is broken and, thus, needs to be fixed. MS. HOLMES recommended that the committee hear from those waiting to testify. In response to a follow-up question from the chair, she said she does not think the proposed legislation would either decrease or increase competition. 9:34:57 AM REPRESENTATIVE JOHANSEN directed attention to language on page 2, lines 22-23, which read as follows: (f) This section does not apply to a contract that incorporates both design services and construction. REPRESENTATIVE JOHANSEN asked why that language is in the bill. REPRESENTATIVE HOLMES said she believes the language aligns with current state practice. REPRESENTATIVE JOHANSEN indicated that within DOT&PF, there is a movement towards "design build and cost savings." 9:36:11 AM MR. COUMBE, in response to Representative Johansen, said the idea for HB 239 originated from the Alaska Professional Design Council (APDC). 9:36:40 AM MARK O'BRIEN, Chief Contracts Officer, Contracting and Appeals, Office of the Commissioner, Department of Transportation & Public Facilities, offered a review of the state's selection process. He said since the state procurement code was enacted in 1986, the department has been using a qualification-based selection process, which has been required for every federal- based contract since 1972. Currently, grant recipients in state and local governments who receive any federal aid are required to perform a qualification-based selection. Some use price as a factor and some do not, he said. Mr. O'Brien offered his understanding that there are 42 states that currently have a qualification-based selection process. Of those 42, 21 currently require what is proposed in HB 239. 9:39:44 AM MR. O'BRIEN said in a low-price selection process, any potential design savings may be offset by higher construction or operating costs from a less than optimal design consideration. He relayed that a life-cycle cost or lifespan of a building engineered is typically about 40 years, and negotiated design fees are usually less than 1 percent of that, while the other 99 percent fall in the category of maintenance and operation costs. He said it can be short-sighted to try to save money on the 1 percent, while the other 99 percent is "expensed out over the life of the building because additional design considerations were not taken into effect." Mr. O'Brien said when design decisions are driven by low price, the emphasis of the design professional changes from being able to take advantage of the full range of design opportunities, which may affect the efficiency of the building over time, to having to focus solely on managing costs. 9:41:51 AM MR. O'BRIEN, in response to a request for clarification, explained that the purpose of HB 239 is to change the process by which all state and local governments acquire their architectural, land surveying, and engineering services: price would no longer be a factor in the selection of the most qualified firm; it becomes a factor later on. He continued as follows: The state, when we go out to ... acquire an architect or an engineer, we send out a request for proposal, we get in proposals from those interested firms, we evaluate them ... only on their qualifications, we take the highest ranked firm, and we enter into negotiations for the actual scope of services that we're trying to acquire. That's the process; and that's the process that this bill then imposes on local jurisdictions for state money that's handed down. So, ... the comments that I made about low price were relative to the process that may be going on out there and why it may be worthwhile to consider a qualification-based requirement. 9:45:01 AM MR. O'BRIEN, in response to Chair Lynn, said cost containment is a project management issue rather than a selection process. 9:46:34 AM REPRESENTATIVE SEATON offered his understanding that the proposed legislation would require [a contractor using state awarded funds] to negotiate with the most qualified entities, but would not require RFPs. 9:48:14 AM MR. O'BRIEN said AS 36.30.270 - statute applying to architects, engineers, and land surveyors - falls under the competitive sealed proposal section of the procurement code. He said, "That issue is addressed in ... procurement code and statute and regulation for us, pointing to an RFP process in advance of that, and that is absent from this." He noted that there is one reference to rejection on page 2, line 7, which read, "The contracting person may reject all or part of a proposal submitted under this section." He said that implies that there is a proposal process. 9:50:41 AM REPRESENTATIVE KELLER said it is obvious that Mr. O'Brien has faith in the quality selection process. He ventured, "It seems like ... you could preclude in that process the contractor that may, in fact, be the one that can give you the best product for the best price." He pointed to the word "proximity" [on page 2, line 1], and noted that the language does not specify whether near or far is better. He expressed concern that "using criteria like that could ... prevent you from cost containment in step two." 9:52:10 AM MR. O'BRIEN said a professional's experience and ability to provide a desired design is not necessarily tied to that professional's hourly price. He explained that a firm with a higher hourly rate may have done so many iterations of a project that it is more time efficient in carrying out the project than a firm with a lower hourly rate that has not had the same experience. He continued: Does price tell you how much you're going to get in terms of value from that contractor? And for a professional, I would argue no. It's the same reason you wouldn't select a doctor by price, you wouldn't select an attorney by price. There are factors other than that that are more important in terms of their qualifications and their ability to perform for you the product that you're looking for. 9:54:00 AM REPRESENTATIVE JOHANSEN offered his understanding that Mr. O'Brien said this process already takes place when federal money is being used. He asked, "We're just talking about strictly state money and some other source, and not federal money, is that correct?" MR. O'BRIEN answered that is correct. REPRESENTATIVE JOHANSEN asked, "Would it be fair to say that ... most every project we do has some sort of federal money involved, and that all of those are already under this umbrella, [vis-à-vis] this language?" MR. O'BRIEN said that is correct. REPRESENTATIVE JOHANSEN gave an example of a $10 million dollar library project taking place in Ketchikan, using a local $5 million municipal bond and a state appropriation for $5 million, and asked if, under HB 239, "we would be able to do the project under these statutes." MR. O'BRIEN replied that if HB 239 passes and that project is partially state funded, then he believes the answer is yes. He said he would have to read the law to recollect whether the distinction is partially or fully state funded. 9:55:59 AM REPRESENTATIVE JOHANSEN questioned whether municipalities and local entities have the expertise, time, and energy to "go through this process." MR. O'BRIEN responded, "If they're currently receiving any federal aid funds - directly or passed through to the state - they're already doing it." 9:56:47 AM KATHIE WASSERMAN, Legislative Director, Alaska Municipal League, said AML members discussed HB 239 at AML's legislative conference last month and no one could figure out what the problem was that necessitated the proposed legislation. She said she has never heard that the procurement rules are an issue. She said a few years ago, when she was the mayor of Pelican, Alaska, the state turned over its harbors to the municipalities, and the amount of money she received to restore Pelican's harbor was very small. She said that "it's all about money," and to not be able to make decisions based on cost would "tie up everything." She mentioned the proximity requirement under HB 239, and she said although she agrees with the bill sponsor that she would not necessarily choose a doctor based on cost, she said proximity would not enter into her decision either; she would fly to Seattle to see a doctor if she had to do so. Conversely, she said she would consider cost when buying a vehicle. She said as former mayor she has received federal money many times, but has never gone through the process described by "the gentleman from DOT." She expressed doubt that what works for DOT will also work for small communities that are doing all they can with few resources. 9:59:40 AM MS. WASSERMAN, in response to Representative Johansen, said she does not remember ever going through an RFP process any differently with federal money than with state money. In response to Representative Seaton, she offered her understanding that most municipalities have a set amount under their ordinances under which they do not require RFPs, but that amount is usually very small. She reemphasized the relationship between a low budget and consideration of cost. In response to a follow-up question, she stated her belief that AML's problem with HB 239 is that it does not believe there is a need for it. 10:02:07 AM REPRESENTATIVE JOHANSEN encouraged Ms. Wasserman to speak with the other municipalities about considerations of larger versus smaller communities. 10:03:45 AM CHAIR LYNN noted that there were several people left to testify, with no time left. 10:04:14 AM CHAIR LYNN announced that HB 239 was held over.