CS FOR HOUSE BILL NO. 257(JUD) "An Act relating to and extending the pilot program for state procurement and electronic commerce tools; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken moved to adopt committee substitute Version LS0826\P as the working document. There being no objection, the Version "P" committee substitute was ADOPTED as the working document. JANE ALBERTS, Staff to Senator Bunde, the bill's sponsor, explained that, contrary to the original version of the bill which would have eliminated a termination date for the Pilot Procurement Program and could have allowed the Program to be implemented in every State department, the Version "P" committee substitute would "significantly scale back" the proposal. 6:16:41 PM Ms. Alberts stated that the Version "P" committee substitute would not expand the Program to additional agencies; it would simply extend the current Program's termination date. Furthermore, in response to significant testimony by public employee representatives, a new Department of Administration $350,000 fiscal note, dated May 7, 2005, would allow union members in "two new agencies outside the Pilot, operating with state employee procurement personnel", to acquire similar eCommerce tools to those utilized by the Pilot Program "in order to provide side-by-side" procurement comparisons. The software to be purchased must to similar, but would not be required to be identical, to the software used by the contractor in the Pilot Program. The dollar amount specified in the fiscal note would sufficiently allow for the purchase of such equipment. Ms. Alberts communicated that Version "P" would extend the termination date of the Pilot Program to July 1,2009 in order to allow the State's procurement program time to become functional and provide sufficient data for the comparison study. Were the State to decide "within 14 months to discontinue the program, there would be time to wind down and perhaps select a different Contractor". 6:18:48 PM Senator Hoffman, noting that technology advances in the computer industry are constantly occurring, asked whether the State agencies could purchase "better" computer programs were they to become available. Ms. Alberts understood there to be a variety of programs from which to choose. In recognition of the fact that the two agencies might desire differing programs to meet their needs, any appropriate program within the specified price parameter could be purchased. Senator Hoffman, agreeing that several programs could be suitable, asked for confirmation that no particular computer program had been specified. Ms. Alberts understood that the agencies would be able to choose the program they deemed appropriate, "within the constraints of the fiscal note". Senator Hoffman remarked that his concern would be met "as long as they are able to buy the best available program..." Co-Chair Green asserted that the specification that the agencies must acquire an eCommerce program similar to the one utilized by the contractor in the Pilot Procurement Program would assure that a good program could be purchased. Ms. Alberts affirmed that the fiscal note would allow the agencies to purchase a program comparable to that utilized by the contractor, Alaska Supply Chain Integrators (ASCI). 6:20:41 PM Amendment #1: This amendment inserts a new subsection in Sec. 5 on page four, following line 20. "(v) The contract authorized by (a) of this section must include terms that protect the interests of the state if the contractor stops performing or fails to perform the contractor's obligations under the contract. In order to allow the Department of Administration and the departments and other instrumentalities of the state participating in the pilot program authorized by (a) of this section to make the transition back to having state instrumentalities handle the activities provided by the contractor under the contract, these required terms must include provisions that (1) give the Department of Administration and the departments and other instrumentalities of the state participating in the pilot program the right to use, for a reasonable period of time after the contractor stops performing or fails to perform, the electronic commerce tools, including all software, used by the contractor to perform the contract; the provision required by this paragraph must allow use by the employees or contractors of the Department of Administration or the departments or other instrumentalities of the state participating in the pilot program; and (2) require the contractor to provide whatever assistance the contractor is able to provide to the Department of Administration and the departments and other instrumentalities of the state participating in the pilot program in using the electronic commerce tools referred to in (1) of this subsection and otherwise making the transition." Senator Dyson understood that the affect of the Version "P" committee substitute would be to eliminate as of July 1, 2009, the entirety of Sec. 2, page one, line 11 through page two, line one. This action would remove the limitations as to which agencies the pilot program could be applied. To that point, an amendment has been developed "that would protect the State in case the contractor providing the services fails to perform". While placing the entirety of a State department's "procurement capacity in the hands of the contractor …. might be wonderful", "the danger is that" were the contractor to fail to perform, the State would have "no fallback position" in which to "to pick up the pieces and start doing their own purchasing". The amendment would require that were the contractor "unable to perform" or to choose "not to perform, their software and files" would become available to the State. This would allow the State to assume those activities. Co-Chair Green voiced concern that the proprietary rights of contractor to that property might prohibit the State from enacting such language. Ms. Alberts informed the Committee that the issue has been discussed. The determination was that this would be an acceptable amendment. However, a representative from the Department of Administration could more appropriately respond to the concern. Senator Dyson moved for the adoption of Amendment #1. AT EASE 6:23:42 PM / 6:25:32 PM Co-Chair Green noted that the amendment is accompanied by a May 4, 2005 Memorandum to Senator Dyson from Theresa Bannister, Legislative Council, Legal Services, Division of Legal and Research Services, Legislative Affairs Agency [copy on file] that further explains the amendment. The Memorandum reads as follows. Impairment of contracts issue. If the proposed amendment requires the parties to modify an existing contract with the pilot program contractor, this requirement may raise an issue under the constitutional prohibitions against the impairment of contracts.1 The initial question appears to be whether or not the change in state law operates as a substantial impairment of the parties' contractual relationship.2 Because this amendment is limited to the remedies under the contract and not the performance obligation to the contract, it may be considered not be to a substantial impairment of the contract.3 So it may not be a problem, but I wanted you to be aware of the issue. 1. U.S. Const. Art. I, sec. 10; Alaska Const. Art. I, sec. 15. 2. 2 Rotunda and Nowak, Treatise on Constitutional Law 15.8, p. 654 (3rd ed. 1999). 3. 2 Rotunda and Nowak, Treatise on Constitutional Law 15.8, p. 654 - 655 (3rd ed. 1999); and see Hagberg v. Alaska National Bank, 585 P. 2d 559, 561-562 (Alaska 1978). Co-Chair Green voiced concern as to how this amendment might impact either the State or the contractor in regards to the terms that already exist in the Pilot Procurement Program contract. 6:27:07 PM Ms. Alberts noted that because Senator Dyson had voiced this concern in previous hearings, an answer could be provided shortly. Co-Chair Green ordered the bill SET ASIDE in order to allow the Department of Administration and other concerned parties to review the amendment. [NOTE: The Committee readdressed this bill at time stamp 6:59:44 PM.] 6:27:27 PM CS FOR HOUSE BILL NO. 257(JUD) "An Act relating to and extending the pilot program for state procurement and electronic commerce tools; and providing for an effective date." Co-Chair Green announced that this bill was again before the Committee. The discussion would continue in regards to the impact that might result by the adoption of Amendment #1. Ms. Alberts expressed that the Amendment has been deemed acceptable to the sponsor. 6:59:44 PM KEVIN BROOKS, Deputy Commissioner, Department of Administration, stated that after discussing the issue with Senator Dyson and Ms. Alberts, the understanding is that the intent of the amendment would be to provide protection to the State were the Pilot Program to fail at some point in the future. The Department appreciates the intent and viewed this as a positive amendment to the bill. Amendment-to-Amendment #1: This amendment-to-the-amendment would replace the words "whatever assistance the contractor is able to provide" with the words "reasonable assistance" in subsection (v)(2) of the amendment, following the word "provide". The amended language would read as follows. (2) require the contractor to provide reasonable assistance to the Department of Administration and the departments and other instrumentalities of the state participating in the pilot program in using the electronic commerce tools referred to in (1) of this subsection and otherwise making the transition. Senator Dyson moved to amend the amendment. There being no objection, the amendment-to-the-amendment was ADOPTED. There being no objection, Amendment #1, as Amended, was ADOPTED. Senator Dyson stated for the record that a representative of the contractor has conveyed that the contractor is in agreement with the amendment. Co-Chair Wilken moved to report the bill, as amended, from Committee with accompanying fiscal notes and individual recommendations. There being no objection, SCS CS HB 257(FIN) was REPORTED from Committee zero fiscal note #1, dated April 8, 2005 from the Alaska Court System, indeterminate fiscal note #2, dated April 8, 2005 from the Division of General Services, Department of Administration, and a new $350,000 fiscal note from the Senate Labor & Commerce Committee for the Department of Administration, dated May 7, 2005. Senator Hoffman, while voicing no objection to the action, asked that the State's Chief Procurement Officer provide a position statement regarding the legislation prior to its' Senate Floor Session hearing.