HB 205-PUBLIC PROCUREMENT  9:15:37 AM CHAIR WIELECHOWSKI announced that HB 205 was before the committee. He said HB 205 addresses preferences in the state's procurement code; it consolidates some preferences and sets standards for how they accumulate. REPRESENTATIVE ANNA FAIRCLOUGH, sponsor of HB 205, introduced the bill. She related that the bill changes and streamlines the procurement code to ensure consistency in application of the law resulting in a more understandable, efficient procurement process. It eliminates a seldom-used preference for employers with disabilities, it consolidates procurement preferences under one statute, and it clarifies which preferences are cumulative and those that may not be combined. It makes application of preferences uniform. Currently, the preferences do not contain the same language so they must be applied differently. LAURA PIERRE, staff to Representative Anna Fairclough, explained the sections of HB 205 on behalf of the sponsor. CHAIR WIELECHOWSKI requested information about the substantive changes. MS. PIERRE described Section 1 as the renumbering of the preferences. CHAIR WIELECHOWSKI asked why the numbers changed. VERN JONES, Chief Procurement Officer, Division of General Services, Department of Administration, testified that the bill aims to pull the preferences out of the various sections in statute and put them all into one section and make the language uniform so they are more easily applied. CHAIR WIELECHOWSKI summarized that preferences are scattered throughout the statutes and the bill consolidated them into one section. MS. PIERRE explained Section 2 amends the local agriculture preference to grant a 7 percent cost preference to the qualifying bid, rather than to the low bid, making it consistent with other procurement preferences. CHAIR WIELECHOWSKI requested more information. MS. PIERRE repeated her explanation. MR. JONES pointed out that the statute is currently written to say a procurement must be awarded to the bidder that qualifies for this preference if their bid is within a certain percentage of the low bid. 9:20:03 AM CHAIR WIELECHOWSKI asked how the bidder qualifies. MR. JONES explained that the bidder, in this case, qualifies when producing a local agricultural or fisheries product. CHAIR WIELECHOWSKI asked if the new bill provides that the procurement officer would screen bidders for qualifications and then award a 7 percent preference. MR. JONES said yes. SENATOR PASKVAN asked how a qualifying bid is determined. MR. JONES said he did not understand the question. He offered that the preference is based on a qualified bid and would be reduced by 7 percent, instead of figuring out who the low bidder was. 9:21:25 AM SENATOR MEYER requested an example of when a procurement officer would go with a low bid rather than with a qualifying bid. MR. JONES called that a misnomer because a low bid has not gone through the bid process to qualify for the 7 percent preference. SENATOR PASKVAN asked if the award is issued in the amount of the original bid or with the 7 percent removed. MR. JONES said it was in the amount of the original bid. He further explained that the preferences are for evaluation purposes only. CHAIR WIELECHOWSKI asked if the bill has the ability to change the results of procurement. MR. JONES said it could because the low bid is different than a bid with a percentage removed resulting in a greater amount. 9:24:17 AM REPRESENTATIVE FAIRCLOUGH further explained that the purpose of the section is twofold, to clarify language, but also to ensure that Alaskan-owned businesses that are harvesting seafood or agriculture receive a preference because they compete in a market made up of large suppliers. She gave an example of lettuce bought for schools. MS. PIERRE related that Section 3 does the same thing as Section 2, but for local fisheries. She said that Section 4 would amend the local agriculture and fisheries preference to not allow a bidder to be granted both preferences. CHAIR WIELECHOWSKI requested clarification. MR. JONES explained that the preferences are duplicative. A bidder cannot have more than one preference, such as an agricultural and fisheries preference, as well as an Alaskan preference. CHAIR WIELECHOWSKI asked if that is in current law and involves "stacking". MR. JONES reported that it has been the division's practice to not allow stacking of preferences. SENATOR PASKVAN gave an example of a local agricultural bidder who would likely elect the 7 percent preference rather than the Alaskan 5 percent preference. MR. JONES clarified that the Alaska product preference is a three-tiered process with a 3 percent, 5 percent, and 7 percent preference based on the percentage produced or manufactured in the state. For example, a fisheries product, which is produced 100 percent in Alaska, would get one 7 percent preference, but not a fisheries product preference, because that would be duplication. 9:27:50 AM MS. PIERRE reported that Sections 5-10 are renumbering sections. She related that Section 11 adds a new section consolidating the Alaska bidder preference, the Alaska Veterans' preference, and other preferences formerly at AS 36.30.170(b). The section also simplifies the qualification for the disability and employment program preferences, eliminates the seldom-used employers of people with disabilities preference, and excludes real estate leases from application of procurement preferences. CHAIR WIELECHOWSKI requested more information about Section 11. MR. JONES explained about the three disability-related preferences, the employment program, the disabled bidder preference, and the employers of the disabled preference. This section eliminates the last preference because it is seldom used. It has only been used by two companies and has benefited only two people. The remaining two preferences are left in statute. SENATOR MEYER asked if there is a cap or a limit to how many preferences a bidder can receive. MR. JONES did not know, but thought it might be between 12 to 15 percent. He said it was typically 5 percent, plus an Alaska preference, or fisheries. SENATOR MEYER used an example of a road construction bid which was the high bid, but was awarded the contract due to preferences totally 15 percent. MR. JONES said, generally speaking, a road project bid would receive a 5 percent bidder preference and a 7 percent Alaska preference to equal a 12 percent total preference. SENATOR MEYER suggested if the persons hired were disabled, the bid would qualify for an additional preference. MR. JONES noted it would be another 7 percent. SENATOR PASKVAN asked for more information about what type of work the two companies previously mentioned did in order to receive the employer of disabled preference. MR. JONES replied that one firm was a business that offers office space leases to the state and the other was a construction firm. He opined that the preference did not make sense in either case. SENATOR PASKVAN noted, as currently written, a company that employs a 100 percent disabled workforce could obtain a lease by bidding $107,000 and win the bid over another company that bid $100,000. MR. JONES said yes, but HB 205 changes that. 9:36:28 AM REPRESENTATIVE FAIRCLOUGH stated that the reason there are preferences in this bill is so that the population in Alaska will benefit. The same is true for disabled preferences that remain in the bill in order to motivate the hiring of disabled people. SENATOR PASKVAN agreed with that intent. He suggested that the work being done should be connected with the disability, which is currently not in place in the one preference. MR. JONES agreed that there is no connection. The employment program preference, which used to be called a Shelter Workshop, provides that connection, as does the disabled bidder preference. The two preferences remaining in the bill do provide a connection. 9:39:00 AM REPRESENTATIVE FAIRCLOUGH explained the purpose of Section 11 is also to clarify the "stackability" of preferences and how the calculations are done. The complication of having preferences located throughout statute was confusing. SENATOR PASKVAN followed up on the example of a 50 percent disabled workforce and asked if the Department of Administration was taking any action to remedy the problem of the disabled person not receiving the benefit. He questioned who the true beneficiary was. MR. JONES said part of the issue is that the preference did not require any benefit to the disabled person, but HB 205 eliminates that problem. SENATOR PASKVAN agreed with that. He asked if there are other areas where a front corporation is used to scam Alaskans. The resolution only focuses on one area. 9:42:48 AM REPRESENTATIVE FAIRCLOUGH noted that there were other areas in previous bills, but they were controversial and are not included in this bill. She used the offerors preference as an example. She said this bill hopes to reach consensus. She noted wide support for HB 205 bill from various entities. SENATOR PASKVAN did remember that controversial bill two years ago. MR. JONES noted another important change in Section 11, subsection (a), where a number of third-party qualifications that would indicate disability are listed. The current process requires the disabled person to have a doctor's note in order to qualify for the preference. HB 205 instead, substitutes third- party qualifications, such as a Veteran Administration Disability or Social Security records or state authorities' determination, for Vocational Rehabilitation to accept. CHAIR WIELECHOWSKI asked how disability is proved currently. MR. JONES explained that it is a case-by-case evaluation process by the Division of Vocational Rehabilitation and requires a letter from a physician, which is cumbersome. SENATOR MEYER asked if there is some protection to the state if a disabled person is injured on the job. MR. JONES pointed out that the state requires standard insurance coverage. SENATOR MEYER gave an example of a crime lab construction bid, which would be very specialized and technical. He questioned if a sole source bid could be requested. MR. JONES replied that would be possible. He noted that there were stringent requirements for approval of single source bids. 9:48:39 AM CHAIR WIELECHOWSKI referred to page 7, line 6, and asked if that information was currently the law, or if temporary disabilities were allowed preferences under the bill. MR. JONES said that language was consistent with current statute. SENATOR PASKVAN asked if there was any provision in procurement statutes whereby someone is subject to criminal prosecution for sham entities. MR. JONES replied that the Alaska Product Preference does have a penalty for illegally claiming a preference. There is also a requirement of good faith in procurement statutes. SENATOR PASKVAN pointed out that the covenant of good faith and fair dealing is implied in a contractual civil sense. He thought he heard no as the answer to criminal prosecution. MR. JONES understood that fraud is a crime and can be prosecuted by the attorney general. SENATOR PASKVAN suggested there was no process for that so it was meaningless. SENATOR KOOKESH asked if any shams had been prosecuted. MR. JONES replied that several times false preferences were claimed resulting in no contract being awarded. 9:52:34 AM CHAIR WIELECHOWSKI asked if the current definition of "disabled" means permanently, totally disabled. He asked if the resolution changes that. MR. JONES explained that the definition of disability does not change. Currently, Vocational Rehabilitation determines who is disabled and they feel they are not qualified, so the bill changes who can determine that the person is disabled. CHAIR WIELECHOWSKI asked if the standard is now "permanently disabled" according to Vocational Rehabilitation. MR. JONES said yes. CHAIR WIELECHOWSKI asked if it was a "total disability" standard. MR. JONES explained how Vocational Rehabilitation determines the definition of disability; the individual has some type of bar to employment. He said he did not know what standard was used. CHAIR WIELECHOWSKI did not want to set a higher standard of disability. REPRESENTATIVE FAIRCLOUGH understood that the resolution uses the current standard but relieves the Division of Vocational Rehabilitation from determining the standard. People with disabilities have already qualified under one of the avenues included in HB 205. The resolution removes a duplication of process. She offered to find out more about the standard used. CHAIR WIELECHOWSKI noted he was looking at the workers' compensation definition and was looking for further information regarding the definition of disabled. 9:56:32 AM MS. PIERRE explained Section 12, which modifies the use of local forest products statute to grant a seven percent cost preference to the qualifying bid rather than to the low bid. Section 13 clarifies in statute which preferences are cumulative and which cannot be combined. Section 14 moves the definition for "Alaska bidder" to a new section. Sections 15 and 16 are renumbering sections. Section 17 repeals statute establishing the veteran preference because it was moved to another section. It also repeals employment program language and relationship to other preferences. Section 18 clarifies the application of the Procurement Act to pending solicitations during transition period. Section 19 is language making the Procurement Act effective immediately. 9:59:19 AM CHAIR WIELECHOWSKI asked if any preferences are new or amended. MR. JONES replied that none are new. The bill exempts lease of office space real estate leases from preferences and makes changes to third-party qualification for the disabled preferences. CHAIR WIELECHOWSKI asked if Section 11 (c) is in existing statute. MR. JONES said it was. A domestic insurer does not currently have to obtain an Alaska business license, so in order to keep the preference consistent for them, subsection (c) would exempt them from having to have a business license; however, they would still have to qualify for all the other elements of the Alaska bidder preference. CHAIR WIELECHOWSKI opened public testimony. 10:01:12 AM SCOTT THORSON, representing himself, testified in favor of HB 205. He spoke from a small business owner's perspective about the advantages of HB 205. It makes doing business with the state easier and more efficient. He said he appreciated the benefits to locally-owned businesses. CHAIR WIELECHOWSKI closed public testimony. REPRESENTATIVE FAIRCLOUGH thanked the committee for hearing the bill. CHAIR WIELECHOWSKI said he would hold HB 205 in committee.