SENATE BILL NO. 152 "An Act relating to the handling of and interest on contract controversies involving the Department of Transportation and Public Facilities or state agencies to whom the Department of Transportation and Public Facilities delegates the responsibility for handling the controversies." DICK CATTANACH, Alaska General Contractors (AGC), testified via teleconference from Anchorage and noted that he had submitted written testimony regarding AGC's position on the legislation. He offered to answer any questions of the Committee. BERT BELL, Alaska General Contractors (AGC), testified via teleconference from Fairbanks that it is wrong to use someone's money and not pay interest on it. He predicted that the State would loose. He spoke in support of the legislation. TON JOHANSEN testified via teleconference from Fairbanks, to voice support of the bill. KEVIN BRADY, Attorney, Oles Mornson Law Firm, testified via teleconference from Anchorage and encouraged the passage of SB 172. He claimed that passing the bill would give some incentive to settle claims where the costs are less. He offered to answer questions of the Committee. BILL RENO, Attorney, Oles Mornson Law Firm, testified via teleconference from Anchorage in support of SB 152. He stated that the dispute-resolution process is badly broken. He emphasized that SB 152 could help address the current process problems and deal with them "fairly". KATELYN MARKLEY, Alaska Industrial Development and Export Authority (AIDEA), testified via teleconference from Anchorage that SB 152 could result in additional interest payments for the State on contract related claims. She added that there is no way to predict what the legislation will cost in the future. AIDEA development finance funds generally do not use general fund money. In the past, claims have been negotiated through the actual settlement. If AIDEA funds are required of AIDEA's net income, then there will be declines, which will result in a decrease to the annual dividends. She stated that SB 152 could affect economic developers, AIDEA and the general fund with decreased funding. EDEN LARSON, Executive Director, Associated Builders and Contractors (ABC), testified via teleconference from Anchorage that the Associated Builders and Contractors supports SB 152. BILL WATTERSON testified via teleconference from Anchorage support for SB 152. Co-Chair Kelly stated that SB 152 would be HELD in Committee for further consideration. AT-EASE 11:05 AM / 6:18 PM SENATE BILL NO. 152 "An Act relating to the handling of and interest on contract controversies involving the Department of Transportation and Public Facilities or state agencies to whom the Department of Transportation and Public Facilities delegates the responsibility for handling the controversies." SENATOR JOHN COWDERY stated that the proposed legislation would require that when a contract settlement with the Department of Transportation & Public Facilities is in dispute and then settled in favor of the contractor, interest must be paid to the contractor on the settlement amount for the time that the contract was in dispute. Interest would accrue at the rate applicable to judgments and the interest accrues from the date the claim is filed through the date of the decision. Senator Hoffman commented that the bill would create constitutional concerns with equal protection. The Department of Transportation & Public Facilities has procurement authority for all construction projects conducted in the State and prejudgment claims will affect all agencies conducting construction. He questioned claims against the other agencies besides the Department of Transportation & Public Facilities. Senator Cowdery replied that if other agencies owe money and the court indicates that, then those agencies should also be responsible to pay the interest due. Senator Hoffman asked why the other agencies were not included in the legislation. Senator Wilken mentioned that Page 1 was difficult to read and noted that there is no effective date placed in the bill. Co-Chair Kelly asked if there were any proposed amendments. Senator Leman thought that the State interest rate was too high and acknowledged that this bill was not the vehicle to make that change. DOUG GARDNER, Assistant Attorney General, Department of Law, commented that the concerns indicated by the Associated General Contractors, propose stipulations that are currently being litigated in a case called Quality Asphalt. The letter does not address the problems that the Department of Law sees with the bill. Mr. Gardner suggested that the Committee should consider that the majority of states do not implement the interest penalty. The legislation would put Alaska in a minority position. Most states pay interest on liquidating claims. The cost of the application of the bill would be "unknown". The fiscal note could be significant if the bill was given any retroactive charges. Many of the Department of Transportation & Public Facilities projects are funded by the Federal Highway Administration (FHWA), the Federal Aviation Association (FAA) or the Federal Transit Authority. Some of the agencies would not pay interest charges. All agencies that build though the State, contract with the Department of Transportation & Public Facilities. Every single agency would be required to pay interest on administrative claims. The Committee could see, in the years to come, a lot of supplemental requests to cover these costs. Mr. Gardner invited the Committee to consider some of the equal protection issues voiced by Senator Hoffman. The bill changes the procurement code and singles out construction projects. A savvy litigator could misconstrue that information. The other projects, such as the Railroad, would be required to have similar statutes in place and to also pay interest. Senator Ward asked how many states have implemented the legislation. Mr. Gardner remembered of the 17 states that were checked, only one pays interest on a disputed claim. He offered to go back and recheck which states had been checked. Mr. Gardner explained that the Department of Transportation & Public Facilities does pay interest on administrative claims. That issue did not become litigated until fairly "late in the game". Contractors probably became familiar with receiving interest payments until the Courts changed that. That was a change in findings. Senator Wilken addressed equal protection. He understood that the contractors had been excluded from the interest payments that the State already pays. Mr. Gardner commented that the responses found in that letter were confusing. In the cases that are brought as direct actions to Superior Court, the State has allowed itself to be sued on certain types of conditions elected by the Superior Court. Senator Donley moved to report SB 152 out of Committee with individual recommendations and with the accompanying fiscal notes. Senator Hoffman maintained his objection. A roll call vote was taken on the motion. IN FAVOR: Leman, Ward, Wilken, Donley, Kelly OPPOSED: Olson, Hoffman Senators Austerman and Green were not present for the vote. The motion PASSED (5-2). SB 152 MOVED from Committee with a "do pass" recommendation and with a fiscal note by Department of Community & Economic Development and note #1 by Department of Transportation & Public Facilities.