SENATE BILL NO. 285 "An Act relating to state procurement practices." Co-chair Pearce first called SB 285 and indicated that this bill was introduced by the Senate Finance Committee at the request of Associated General Contractors. Present was Mr. John Wheatley from Associated General Contractors. She also noted that there was a sponsor statement by the Senate Finance Committee in the packets as filed. On line via teleconference were Henry Springer, Executive Director, Associated General Contractors and John Eng also with Associated General Contractors. John Wheatley, Executive Vice President, Willis Corron Corporation was invited to join the committee. He said the company he was with was one of the largest commercial insurers and construction surety bond brokers in the State. He is also Legislative chair for the Associated General Contractors this year. He thanked the committee for allowing him to testify in favour of SB 285. He said currently, when highway improvements were needed, a project was designed, advertised and a contract was awarded for the work. He explained that when a highway being improved crossed a railroad track, the Alaska Railroad had input and the Department of Transportation negotiated a force account cost plus contract with the Alaska Railroad for that work. This would reduce the amount of work for the private sector and removed tax dollars from a competitive bid. He further said that they supported SB 285 which would require the Alaska Railroad to utilize the competitive bid process and would establish a fair and effective manner to award contracts for projects that cross the railroad. Senator Phillips said perhaps the opposite argument against the bill would be the safety aspect. He noted that apparently the railroad workers felt more qualified. Mr. Wheatley responded saying the work was inspected, built to specifications, therefore satisfying the safety issue. In response to further question from Senator Phillips he indicated that inspections were done by the State inspectors. Senator Parnell asked if these were contracts DOT was putting out or the railroad? Mr. Wheatley responded that it was DOT. He asked if they would require contractors to have experience and be licensed and insured to cover any potential problems that may arise? Mr. Wheatley agreed it was typical. Senator Parnell further inquired that as part of the procurement process sufficient experience would be required to award the contract otherwise they would not allow just anyone to obtain the bid? Mr. Wheatley stated that as pointed out, public contracts, particularly Department of Transportation contracts, require the contractors to provide surety bonds that guarantee performance of the work. Henry Springer, Executive Director, Associated General Contractors testified via teleconference from Anchorage. He said one of the key points in AGC by-laws and regulations was that they subscribe to open competitive bidding processes. He pointed out that categorically, contractors could build anything anyone wanted to have built. If it was something highly specialized or not in the general scope of work there were a variety of specialty contractors who perform those specialties in all categories, usually as subcontractors to general contractors. Everyone knows that the Alaska Railroad is not a purely public entity, however DOT is and they receive public funds out of the highway trust funds through the Federal Highway Administration. Consequently they are bound to abide by different procurement regulations, including in the State of Alaska, the State Procurement Code. The work being questioned was those areas where a State highway or a Federal registered highway crossed a railroad right-of-way. This was not different than any other work that needed to be done when the owner is not DOT or the State of Alaska. Included would be different private entities, native lands and such. In general, he said, it was DOT's work over railroad land in agreement with the railroad, if it pertained to bridges and overpasses. He voiced concern, however, when it came to railroad crossings that were at the level of the track. What typically happened was that DOT made an agreement with the Alaska Railroad and gave the money to the railroad. There is no true check and balance system regarding what would be the best price for the work in regards to public policy. The only way to find out is to put the project out to bid. In cases where there are restrictions placed or unsolicited, basically agreed upon agreements together, it was always more expensive; the excuse being the operational or technical necessity to do so. This was usually done in the form of a grant or force account agreement. The grant is a lump sum payment to the owner to do whatever must be done to satisfy demands; force account is basically paying for personnel, materials, equipment and time in the form of an agreement and was usually used when the scope of the work was not clearly defined. He said in this case that was not true. The scope of work was not unforeseen and could be clearly defined by the owner, the operational demands could be clearly defined by the owner and therefore, there was no reason the railroad should not bid work that was financed with public funds from the Department of Transportation. That was the only way to guarantee that public policy is adhered to and people get the best price for the work. He noted the two safety concerns, one being operational safety. He said that was ongoing train schedules and operations by the Alaska Railroad. He said he had been involved in several projects involving the railroad and usually a retired railroad person was put on the payroll of the contractor and that had been done with success. Or, there was also nothing preventing the Alaska Railroad having a person safeguarding their safety operational requirements on the project. That individual could be paid through project funds. Mr. Wheatly already indicated all public work being done had to be bonded, so there would be a check and balance in the guarantee that the owner would get what he needed. He said his testimony laid out there were no present circumstances why the jobs should not be bid. Dennis Poshard, Legislative Liaison, Department of Transportation and Public Facilities was invited to join the committee. He said the department did not oppose or support the bill. He pointed out that their only concern with the bill was that their costs did not go up as a result of it. The railroad may want to address this at some point. Currently, he said they were happy with the process used for dealing with railroad crossings on road projects. A portion of the project that related to railroad crossings, such as a road going across railroad tracks, was separated and was not included in the bid. Then a force account contract would be negotiated. They had a fair idea of figuring out what the costs were and negotiating a reasonable contract. The railroad, up to date, had chosen to do with their own personnel and their own equipment. Whether they contract out or not is not a concern of the department. They thought the current process was good and felt it was better for the railroad to do the work and have their own inspectors on the projects. It saved the department from having to meet with them, include it in bid specs, work with the contractor and then try to go and sell the completed project to the railroad. This was mostly for safety reasons and the ease of trying to coordinate that part of the project. He did not want to speculate as to whether the safety would improve or go up or down if a contractor were to do the work or whether the costs would go up or down. The department only wanted to make sure that if the bill passed or did not pass, the committee would consider whether or not the department's costs would go up as a result. He further pointed out, with regards to the sponsor statement there were statements made that this would allow the Alaska Railroad to define how a portion of their tracks that interphase with the highway improvement project could be improved at taxpayer expense. He said, however, the railroad was not the only benefactor of taxpayer money on road projects. For example, they also work with utility companies to bury power lines. He said the railroad did not define how much their portion of the highway project should cost. The department's own project manager does the negotiating with the railroad and assures that the costs stay down. Other entities also benefit from DOT road projects. He said the department did not provide for any profits in the contracts. Senator Phillips asked if this process in Alaska was any different than the States of Washington or Montana that also deal with railroads? Mr. Poshard indicated he had no experience with these states. Senator Parnell asked if sufficient experience of the contractors was required in the request for proposal to complete this kind of work? Mr. Poshard said as he read the bill it would be up to the Alaska Railroad Corporation. But, the department would work with them. With regards to the work the railroad was currently doing they would be required to contract that out. Either the department would have to give them money, issue the contract separately or the department making it part of the overall road project contract. Senator Parnell asked what was the volume of dollars on an annual basis directly distributable to railroad crossing work? Mr. Poshard said he did not have exact figures, however, he said part of the reason they did not oppose nor support the bill was because it was a very miniscule amount of the total road budget that they have annually. Senator Parnell asked that Mr. Poshard explain "miniscule" amount and Mr. Poshard said that statewide it may amount to a couple of million dollars. On a per project basis it was a very small amount. Senator Parnell asked if an analysis had been done on whether or not there would be a cost savings or increase for putting the job out to bid? Mr. Poshard said they were currently doing that work and had requested such information from the railroad. Senator Parnell requested a list of this information. He further commented on the fiscal note, realizing that it was difficult to estimate costs. Co-chair Pearce said it was her understanding from the AGC that DOT&PF used to contract projects out, as either part of larger road projects or smaller ones. She wanted to know when the department started going directly to the railroad and have them do the work. Mr. Poshard said he was not certain when that changed. He could only speak to current procedures and did not know how long those had been in place. He advised the Co-chair he would check this out and get back to the committee. Senator Phillips asked when there was a major road project, involving power lines, cables, etc. did they contract to whoever owned the power line or did the contractor remove it as part of the road project? Mr. Poshard said he could not respond to this, but he would be able to get back to the committee with the answer. Co-chair Pearce referred to right-of-way and said occasionally utility companies find they get to move their utilities or up-grade them as part of a larger project and asked if a fee was paid to the State for the right-of-way? Mr. Poshard said he believed the utilities companies pay a fee for the right-of-way. Co-chair Pearce indicated they were treated somewhat different. Co-chair Pearce requested that materials asked by the committee to be supplied be done as timely as possible. Jim Blasingame, Alaska Railroad testified via teleconference from Anchorage. He indicated that Mr. Bill Hupprich, Associate General Counsel was also present. Mr. Blasingame said the railroad had no real objection to the proposed legislation as written. Unfortunately he said they did not have the benefit of the statements made by the other individuals, so they could only reply briefly. With regards to contracts or force accounts provided to the Alaska Railroad from DOT, he said: "we are a utility company just as other utility companies where DOT goes to Chugach Electric or ATU to perform those kinds of work". He further said that theirs had to do with crossings, in the sense that if someone else were to do it, the Alaska Railroad would have to have its inspectors certify that the work was being done properly. In addition, they would have to have flagging protection for the trains. He said those would be additional costs that would probably amount to about ten percent more than what they would already have. He said they did not make any profit off that work performed at those crossings. With reference to Mr. Poshard's testimony, when DOT provides a contract to the Alaska Railroad for crossing construction, they actually audit the railroad's books and determine the rate to insure they were not making a profit. It is all done at cost. He noted further for the committee, that their union labor agreement dictated that all railroad operating work be performed by railroad employees. That would be a problem if it were to be dictated to be contracted out. He believed there was a State law pertaining to utility companies that perform works on their right-of-way by the Department of Transportation. Bill Hupprich, Associate General Counsel for the Alaska Railroad, testified via teleconference from Anchorage. He believed there was a State law that allowed utility owners the right to perform DOT&PF work using their own personnel, their own equipment and their own materials. He indicated that would be found at 17 AAC, section 15.31.0 to 461, and 17 AAC, section 15.471 to 551. Senator Parnell queried Mr. Hupprich as to the wording in the contract related to the earlier statement by Mr. Blasingame that all railroad operating work must be done by employees. Mr. Hupprich said it was in their collective bargaining agreements. Basically, they require any on-track work, including moving the track, picking up the rail, putting in new ties, ballast and installing crossing signals had to be done by railroad workers. Or at least they have to have the opportunity to bid on that work. Senator Parnell felt that was the key, not that it was required, but rather they had the opportunity to bid. He asked Mr. Hupprich to clarify what the regulations were in regards to utility owners. Mr. Hupprich, referring to his notes from last year, said that any utility owner, be it water line company, telephone company or electrical company, had the right to perform any DOT required relocation of their utility with their own labor forces and their own equipment. That was because they were the owners of the cable, water line, or in this case, the railroad track, which was being relocated. Senator Parnell asked whose regulations those were and Mr. Hupprich responded that he was not sure. He briefly noted Title 17. Senator Parnell asked, if under those regulations, the railroad was classed a utility and Mr. Hupprich responded that he believed so. Co-chair Pearce said this was yet another hat they wanted to wear. John Eng, President, Cornerstone Construction, testified before the committee via teleconference from Anchorage. He said they were general contractors incorporated in the State of Alaska to perform work of this type in addition to other general construction. They felt the bill addressed only projects financed with tax dollars. It did not deal with projects that the Alaska Railroad paid for with revenues generated within their own organization. He gave an example of the Federal Government having several miles of railroad on Ft. Wainwright. They have for several years contracted with the Alaska Railroad to maintain the line and do all construction on a force account basis. Two years ago they did advertise for bids and the company did submit a bid on the job. They were awarded the contract and the railroad was happy enough with their work to extend the contract by an additional year and have options to do so in future years. He said approximately eighty percent of the man hours paid out on the project were higher wage rates than those paid by the Alaska Railroad or the prevailing wage rate. Twenty percent was paid at the prevailing wage rate, which was the same as paid by the Alaska Railroad. Yet, the cost the owner was paying was approximately twenty-five to thirty-five percent cheaper than they were paying the Alaska Railroad to perform the same work. The last work last month as performed by the Alaska Railroad, compared to the subsequent months that they performed the work, the cost savings were approximately twenty-six percent. That was typical and in that range of twenty-five to thirty-five percent savings. They felt it was a win/win deal for everyone. Costs were reduced, public dollars were spent in a public format by advertising for bids and by defining what was required on contract documents the owner should get what they want. The safety issues as affected the public were the same as when a highway was built. The general contractors had certain safety requirements they had to adhere to when a road was under construction. The railroad had to adhere to the same requirements. He could also answer one other question, as a general contractor, and said they bid on road and street work all the time that involved other utilities, such as Chugach Electric or telephone utilities. In those contracts the scope of work was defined such as relocating underground conduit lines and so forth that utility lines pass through and what they did was use specialty personnel for that work and it was relocated as a bid item on the bid documents. In the particular case of Chugach Electric underground utilities, that work was included in public bid documents for street widening and was competitively bid. Senator Phillips asked who owned the right of way going from the railroad to the post in Fort Wainwright? Mr. Eng indicated it was owned by the Alaska Railroad. On the base it was owned by the Federal Government. Jim Blasingame, via teleconference from Anchorage, said he wanted to correct the comment by Mr. Eng regarding the right-of-way in Fort Wainwright. He said it belonged to the U.S. Army and not the Alaska Railroad. Co-chair Pearce said it was indicated by Mr. Eng that the right-of-way to the Fort belonged to the Alaska Railroad and on the Fort it belonged to the Federal Government. Senator Torgerson queried Mr. Blasingame with regards to direct grants from the Federal Government in the approximate amount of ten million dollars per year. He asked if that money went through DOT and were there any other appropriations that might be public funds funneled through DOT that did not have direct correlation to railroad crossings? He said this bill covered procuring supplies, professional services or construction and that was a fairly broad-based statement. The question was whether federal money or public money might come to the railroad through DOT. Mr. Blasingame responded that the other grants do not come through DOT. They came directly to the Alaska Railroad through the Federal Railroad Administration who actually administered the money. The only thing received from DOT had to do with the crossings where the highway and the railroad intersect. Co-chair Pearce said she would hold the bill in committee until fiscal notes were received from the Alaska Railroad and the Department of Transportation and Public Facilities. She further asked Mr. Blasingame or Mr. Hupprich to provide the appropriate cites in their union contract requiring that any work be done by railroad employees. Senator Parnell indicated he was also interested in taking a look at the contract. Mr. Blasingame indicated he would comply with the request. Co-chair Pearce further stated that the bill would be brought before the committee sometime next week. With that she called SB 261.