SB 315 ALASKA RAILROAD PROCUREMENT  Number 001 CHAIRMAN RIEGER called the Senate Transportation meeting to order at 1:36 p.m. and noted that testimony would be taken until a quorum arrived. He introduced SB 315 as the first order of business. HENRY SPRINGER, Executive Director of the Associated General Contractors of Alaska, emphasized the association's platform of open competitive bidding processes. He said that there have been attempts to erode that process in the past few years. Mr. Springer mentioned that he worked with the Department of Transportation (DOT) in 1962 and is somewhat familiar with the construction or changes within the right of way of the Alaska Railroad. He did not understand why that work could not be done under a competitive bidding process. The Alaska Railroad would continue to outline the specifications and the operational demands. Mr. Springer said that it could be done as a specialty contract where the railroad does the construction and integrates the construction with their maintenance and other operations or it can be done through DOT. Regardless of how the work is done, Mr. Springer believed that the work could be done as the rest of the state work is done, which is in compliance with the State Procurement Code. He offered to answer any questions. A quorum was established. Number 082 JOHN ENG, Cornerstone Construction, explained that Cornerstone Construction is a general contractor that does commercial and industrial work as well as railroad maintenance and construction. Mr. Eng believed that tax dollars should be awarded through a competitive bidding process. He agreed with Mr. Springer that the owner of the adjacent property whether it be the railroad or someone else, could establish some technical requirements that would have to be followed for everyone's benefit. Mr. Eng said that he was promoting this legislation primarily for the economic benefit to the state as well as a competitive bid operation and business opportunity for Cornerstone Construction. BOB HATFIELD, President and CEO of the Alaska Railroad, said that the railroad owns the right of way on which the work would be done and the railroad should do the work it is capable of doing on its own right of way. As a standard condition to consent to a DOT grade crossing project, the railroad asks that its employees do that work which involves changing or moving track. Mr. Hatfield emphasized that the railroad asks that its employees do such work due to the liability issues which the railroad accepts through its normal operations. Therefore, the railroad wants to know exactly how work has been done. Mr. Hatfield recognized that the work could be accomplished by contractors, but the railroad's liability creates the need to know exactly what is done. Also the train and construction operations have to be coordinated; the railroad can do this more efficiently. Mr. Hatfield pointed out that the railroad is reimbursed for doing a project in accordance with the Federal Highway Administration guidelines. He explained that cost estimates are submitted to DOT who analyzes the estimates for reasonableness. Once the project is complete, DOT routinely audits the payments in order to ensure that the railroad does not receive payment for work that was not done or not done in the manner specified. He offered to answer any questions. Number 145 SENATOR LINCOLN inquired as to why the railroad could not specify within the contract that the contractor would bear the responsibility. With regards to the reimbursement by the federal government, could the contractors or subcontractors submit cost estimates and DOT could audit them just as the department audits the railroad? BOB HATFIELD agreed that the audits could be done for the subcontractor. Mr. Hatfield reiterated that the railroad can not only do work comparable to that of a contractor, but also can coordinate the work better. This discussion only refers to track and signal work. Mr. Hatfield pointed out that the railroad routinely contracts out other work in the right of way that does not directly involve the track or the signal. SENATOR LINCOLN noted that Mr. Eng's letter said that he was looking at railroad crossings and overpasses when asking how track and signal work would be involved in overpasses. BOB HATFIELD explained that often a track must be relocated when there is work done on an overpass. SENATOR LINCOLN asked if Mr. Hatfield believed there to be a cost savings to Alaska by keeping the contract solely with the railroad. BOB HATFIELD believed there to be a cost savings. The railroad has the equipment, people, and the expertise to do this work on demand. Mr. Hatfield noted that the railroad seems to have the same situation with highway construction as the utility companies do. SENATOR LINCOLN asked how much the savings would be in one fiscal year. BOB HATFIELD did not know. There are many factors involved in such an estimate. Number 203 SENATOR GREEN asked if this same dilemma applied to any other governmental entity besides the railroad. Senator Green believed that a conflict had been created in this public-private entity which separates the railroad from a normal utility. SAM KITO III, Department of Transportation & Public Facilities, did not believe there was another private entity to which this would apply. Typically, the department does force account work with villages through Public Health Services or the Department of Environmental Conservation. SENATOR TAYLOR said that the substance of SB 315 is to allow the railroad to defer to DOT. He asked if the railroad would have to defer to DOT. CHAIRMAN RIEGER explained that SB 315 would require that the railroad use the same processes that DOT would have used had DOT done the work themselves. In response to Senator Taylor, Chairman Rieger said that the railroad is not doing that. BOB HATFIELD interjected that the railroad is behaving in the same manner in which DOT would. DOT can choose to do the work itself of the work can be contracted out. SENATOR TAYLOR asked if the railroad was using competitive sealed bidding. BOB HATFIELD said that the railroad was being asked to do the work and the railroad is. SENATOR TAYLOR said that if the work is being done in-house, competitively sealed proposals would not be required; this law would not effect that, would it? BOB HATFIELD said that it seems that any work DOT may undertake on the railroad's property which involved track work would have to be put out to bid, even routine work. SENATOR TAYLOR asked if the routine work was being done by DOT, not the railroad and its employees. Number 256 BOB HATFIELD explained that DOT may be relocating a road or building a highway overpass which would require taking apart tracks or moving tracks. That work is done by the railroad at the request of DOT. SB 315 would require that work done by the railroad for the railroad to be competitively bid upon. HENRY SPRINGER pointed out that under the State Procurement Code, any money appropriated to DOT under the Capital Program (CIP) or any projects must have a competitive bidding process. The department can choose how to proceed with operating and maintenance funds that are general fund appropriations. Mr. Springer clarified that he was asking that the railroad, in cases of capital money coming through DOT to the railroad, have a competitive bid process. SENATOR LINCOLN understood from previous testimony that this legislation would cost the state more money. She noted that there is no fiscal note. Senator Lincoln inquired as to the position of DOT regarding SB 315 and if SB 315 will cost more money. CHAIRMAN RIEGER pointed out that there are fiscal notes from the Alaska Railroad and DOT. SENATOR LINCOLN said those fiscal notes are zero. SAM KITO III said that DOT does not believe there to be a fiscal impact with SB 315. The department cannot project what the fiscal impact may be for the Alaska Railroad Corporation if the method of operation is changed. Mr. Kito said that DOT supports the Alaska Railroad Corporation's position on SB 315. Number 300 CHAIRMAN RIEGER asked if the Alaska Railroad were a private corporation and there were no special statutes governing the railroad, would DOT be able to transfer the ability to do the work on the railroad's right of way to that private railroad. If the department could transfer that ability to a private railroad, would it be subject to State Procurement Code laws? SAM KITO III believed that if the Alaska Railroad Corporation were an independent or private entity, DOT would have no say in how the project was constructed. With regards to the private entity receiving funds from the department, Mr. Kito did not know if that would be possible. CHAIRMAN RIEGER asked if that was done in any other instance or does the department always own the right of way included in a project. Perhaps, utilities would be an example. SAM KITO III informed the chairman that DOT does have lease agreements for utilities within the road right of way where a utility will have an easement within the road right of way to place its utility. With a DOT project or highway project, the department will own the right of way or have a significant interest. With some airports, the department leases the land from a corporation or is proposing to lease the land from a corporation. CHAIRMAN RIEGER asked if the department did the work in such situations. SAM KITO III replied yes, the department does the work directly; it is a public project. The department would have a lease for the property and the department would have significant interest in the property in order to operate a public project. Number 330 CHAIRMAN RIEGER asked if money would be transferred to Alyeska where the road crosses the pipeline right of way or would the department do the work. SAM KITO III said that he was unfamiliar with the statutes and the regulations. Statute specifically addresses utility relocation in state right of way. CHAIRMAN RIEGER said that he was still unclear as to what would transpire if the railroad was private. SENATOR TAYLOR acknowledged that there may be some specialty or advantage to doing the work in-house. He asked if this work should be open to competitive bidding when the railroad is ultimately liable for the trains running over that work. SENATOR LINCOLN wanted to know if there would be a significant difference in the cost of going through a competitive bidding process. She pointed out that more employment would be created, if there was not a significant difference in the cost. With regards to the liability, Senator Lincoln suggested that the construction of buildings, highways and bridges is no different than building railroad ties. The liability could be written into the contract. Is there going to be an additional cost to Alaska and if so, how much? Would this carry forward if the railroad was sold? BOB HATFIELD indicated that he would be speculating at this point with regards to the savings or expense of SB 315. However, Mr. Hatfield assumed that there would be no savings from the labor cost component. Furthermore, the railroad has parts and materials that are bought in bulk which presumes a better price than a contractor would be able to obtain. Even if a contractor did the work, the railroad would require that a flagman and track inspector be in place monitoring the work. Therefore, three more employees would be present than would if the railroad were doing the project. SENATOR LINCOLN asked if anyone would have to be laid off if the bidding process were utilized. BOB HATFIELD said that it could be possible. With the Bird Creek to Girdwood Project, employees would have been laid off. Number 399 RICK LEGGETT, General Road Manager, that the Bird to Gird Project had about 30 track people on that project and two separate crews. If that project had been allowed to go through the bidding process, those railroad employees would have been laid off. SENATOR GREEN asked if the railroad determines the size of its staffing based on the assumption that those employees will do those projects in-house. JOHN ENG posed the following question: would the work be better on a competitive bid basis or a cost plus force account basis? BOB HATFIELD pointed out that the railroad's estimates are reviewed for reasonableness before the work is done and are further audited after the work is completed in order to ensure that the railroad did not do anything out of line. JOHN ENG said that SB 315 does not prevent the railroad from also bidding on the work. With a competitive bid process, the railroad would be able to demonstrate if there would or would not be savings if the railroad did the work. SENATOR TAYLOR does not like the current procurement code. It is burdensome. If the railroad has used private contractors in the past and this is a policy shift, Senator Taylor did not object to the legislation. CHAIRMAN RIEGER pointed out that the additional language in SB 315 refers to "when procuring" and that there would be a competitive process "when procuring". Chairman Rieger clarified that the complaint was in regards to the force account. Does the railroad interpret SB 315 as preventing any in-house work? BOB HATFIELD replied yes. The railroad believes that SB 315 would require the railroad to competitively bid a project no matter how small or large. Mr. Hatfield mentioned the administrative burden which would be created for the railroad. CHAIRMAN RIEGER asked if Mr. Eng interpreted the bill in that manner. JOHN ENG said no. Mr. Eng understood the bill to mean that public bidding would only be required when the project is funded by tax payers' dollars. BOB HATFIELD agreed with Mr. Eng, but some of DOT's projects paid for by tax payers are relatively insignificant with regards to cost. HENRY SPRINGER pointed out that is done under AS 36.30.100 - 36.30.270 which does not preclude the work being done in-house or by force account; the statute lays out a mechanism. It basically says that, under the procurement code, anything over $100,000 would be required to go through a competitive bidding process. If there are extenuating circumstances, then the competitive bidding process does not have to be used; it is not a blanket requirement. CHAIRMAN RIEGER asked if there were other questions from the committee. Hearing none, Chairman Rieger asked for the pleasure of the committee. Number 465 SENATOR TAYLOR moved that SB 315 be moved out of committee with individual recommendations. CHAIRMAN RIEGER noted that SB 315 has a referral to Senate Finance. SENATOR LINCOLN objected for discussion purposes. She had no objection to moving the bill to Senate Finance, but the bill could be waived from that committee because of the zero fiscal notes. Senator Lincoln said that she would not object to moving the bill out of committee if she was assured that it would be heard in Senate Finance. SENATOR TAYLOR shared Senator Lincoln's concerns regarding the fiscal impacts of SB 315. He hoped the bill would not be waived from Senate Finance. SAM KITO III explained that AS 36.30.100 - 36.30.270 does not have any guidelines for what would constitute a project that should be eligible for competitive sealed bid or competitive sealed proposal. Those portions of the procurement code only address the procedures by which a competitive sealed bid or a competitive sealed proposal would be implemented. CHAIRMAN RIEGER said that he would like to move this bill, but he would also like to review those statutes. SENATOR TAYLOR withdrew his motion. CHAIRMAN RIEGER believed that often public projects are appropriated in part, with the expectation that work would get out to the private sector. Chairman Rieger said that he was sympathetic to that. He wanted to have a workable procedure in place to ensure that happens. If there is a question regarding the restrictions with the procurement reference, then it would be appropriate to hold the bill. Chairman Rieger asked if anyone else would like to testify on SB 315. He informed everyone that staff would research those statutes, obtain a legal opinion, and share it with committee members.