HOUSE STATE AFFAIRS STANDING COMMITTEE April 23, 1993 9:00 a.m. MEMBERS PRESENT Representative Al Vezey, Chair Representative Pete Kott, Vice Chair Representative Harley Olberg Representative Jerry Sanders Representative Gary Davis Representative Fran Ulmer Representative Bettye Davis MEMBERS ABSENT None COMMITTEE CALENDAR SB 129: "An Act relating to state procurement; and providing for an effective date." HCSCSSB 129(STA) PASSED OUT OF COMMITTEE WITNESS REGISTER JERRY BURNETTE, Legislative Aide Legislative Budget and Audit Committee Room 103, State Capitol Juneau, Alaska 99801 465-4949 Position Statement: Explained intent of CSSB 129 (FIN)am DUGAN PETTY Director of General Services Department of Administration P.O. Box 110210 Juneau, Alaska 99811-0210 465-2250 Position Statement: Supported CSSB 129 (FIN)am BRIAN ROGERS Vice President for Finance University of Alaska 207 D Butrovich Fairbanks, Alaska 99775 474-7448 Position Statement: Supported CSSB 129 (FIN)am LOREN RASMUSSEN Chief of Design and Construction Standards Department of Transportation 3132 Channel Drive Juneau, Alaska 99801-7898 465-2960 Position Statement: Stated limitations on DOT under CSSB 129 (FIN)am PREVIOUS ACTION BILL: SB 129 SHORT TITLE: POWERS OF CHIEF PROCUREMENT OFFICER BILL VERSION: CSSB 129(FIN) AM SPONSOR(S): RULES BY REQUEST OF LEGISLATIVE BUDGET AND AUDIT TITLE: "An Act relating to state procurement; and providing for an effective date." JRN-DATE JRN-PG ACTION 02/22/93 440 (S) READ THE FIRST TIME/REFERRAL(S) 02/22/93 440 (S) STATE AFFAIRS, FINANCE 03/03/93 (S) STA AT 09:00 AM BUTROVICH 205 03/03/93 (S) MINUTE(STA) 03/17/93 (S) STA AT 09:00 AM BUTROVICH 205 03/18/93 846 (S) STA RPT CS 4NR NEW TITLE 03/18/93 846 (S) FISCAL NOTE TO SB (ADM) 03/18/93 846 (S) ZERO FISCAL NOTE TO CS (ADM) 04/07/93 (S) FIN AT 09:00 AM SENATE FIN 518 04/12/93 (S) FIN AT 09:00 AM SENATE FIN 518 04/14/93 (S) FIN AT 08:30 AM SENATE FIN 518 04/15/93 (S) FIN AT 06:45 PM SENATE FIN 518 04/16/93 1438 (S) FIN RPT CS 6DP NEW TITLE 04/16/93 1439 (S) ZERO FISCAL NOTE TO CS (DOT) 04/16/93 1439 (S) PREVIOUS ZERO FN APPLIES TO CS (ADM) 04/19/93 1483 (S) RULES 3CAL 1NR 4/19/93 04/19/93 1544 (S) READ THE SECOND TIME 04/19/93 1545 (S) FIN CS ADOPTED Y11 N9 04/19/93 1545 (S) AM NO 1 MOVED BY FRANK 04/19/93 1545 (S) AM NO 1 ADOPTED UNAN CONSENT 04/19/93 1546 (S) ADVANCE TO 3RD RDG FAILED Y11 N9 04/19/93 1546 (S) THIRD READING 4/20 CALENDAR 04/20/93 1597 (S) READ THE THIRD TIME CSSB 129(FIN) AM 04/20/93 1597 (S) PASSED Y20 N- 04/20/93 1597 (S) EFFECTIVE DATE VOTE SAME AS PASSAGE 04/20/93 1602 (S) TRANSMITTED TO (H) 04/20/93 1379 (H) READ THE FIRST TIME/REFERRAL(S) 04/20/93 1379 (H) STATE AFFAIRS, FINANCE 04/23/93 (H) STA AT 09:00 AM CAPITOL 102 ACTION NARRATIVE TAPE 93-45, SIDE A Number 000 CHAIRMAN AL VEZEY called an emergency meeting of the House State Affairs Committee to order at 9:02 a.m. on April 23, 1993. Members present were Representatives Pete Kott, Harley Olberg, Bettye Davis, Gary Davis, Fran Ulmer and Jerry Sanders, representing a quorum. CSSB 129 (FIN)am POWERS OF CHIEF PROCUREMENT OFFICER Number 011 CHAIRMAN VEZEY read the title to CSSB 129 (FIN)am, and stated his intent to go through the bill section by section. He noted the changes in Section 1, extending the term of office for the chief procurement officer from four to six years; and noted the clarifications in job status and salary in Section 2. He then stated he felt the intent of the bill was contained in Section 3, which required judicial, legislative and departmental offices to report to the legislature any renewal of, or entrance into, a lease purchase or lease finance agreement, and also requires the report of the total lease payment for the full term of the lease to the legislature. Number 122 REPRESENTATIVE FRAN ULMER asked if that meant the refinancing clause could be interpreted to mean the legislature would have to pass a law approving the refinancing. Number 127 CHAIRMAN VEZEY stated he did not interpret the clause to mean that. He said the reasonable interpretation would require notice to the legislature before the deal was made, provided it exceeded $1 million a year or $10 million in total. Number 154 REPRESENTATIVE HARLEY OLBERG stated the sentence may mean the department could not enter or renew an agreement above $1 million because the sentence appears to only relate to subsections 4 through 10. Number 166 REPRESENTATIVE ULMER stated she felt the sentence needed clarifying because of the implication the department may not be able to enter into such agreements. Number 180 JERRY BURNETTE, LEGISLATIVE AIDE, LEGISLATIVE BUDGET AND AUDIT COMMITTEE, joined the committee to clarify some points about CSSB 129 (FIN)am. He stated the bill was amended to provide for notice to the legislature for any lease purchase or lease finance agreement except for existing balance. He stated the intent of the legislation was derived from a pair of transactions at Wildwood prison where the single annual lease payment exceeded $1 million, with the total lease amount exceeding $10 million. He said prison officials split the transaction into two lease purchase agreements to avoid the procurement requirements. Subsequently, auditors recommended the legislature be involved in any lease purchase agreement at any amount, which CSSB 129 (FIN)am would accomplish. Number 243 REPRESENTATIVE ULMER asked if the Department of Transportation (DOT) had been consulted, and if they found the new regulations problematic. Number 247 MR. BURNETTE stated he had not been in contact with DOT, but there was no indication CSSB 129 (FIN)am would present problems. Number 254 REPRESENTATIVE ULMER stated she was concerned about DOT purchases or leases of property for airports or ferry ports. She noted DOT may want to lease purchase land from native corporations in the bush for the purposes of building maintenance hangars, and expressed concern CSSB 129 (FIN)am would prevent such a buy. Number 272 MR. BURNETTE stated DOT airport and seaport purchases are exempt from Alaska Procurement Procedures. Number 275 REPRESENTATIVE ULMER stated concern DOT may want to lease land or facilities in the future, and wondered if the legislature would have to pass a bill to allow those deals. Number 286 CHAIRMAN VEZEY said he would like to move on, and asked what would be accomplished if total lease payments on lease purchase or lease finance agreements are included in reports to the legislature. Number 292 MR. BURNETTE stated the clause was designed to provide notice to the legislature for any amount. Number 308 CHAIRMAN VEZEY noted that Section 4 appeared to be technical and minor because it allowed the procurement of professional services on a sole source bid of less than $25,000, a point the committee had addressed previously. Number 324 REPRESENTATIVE ULMER asked the logic of adding professional services to the exemptions from procurement laws. Number 338 DUGAN PETTY, DIRECTOR OF GENERAL SERVICES, DEPARTMENT OF ADMINISTRATION, joined the committee to explain the provisions of Section 4. He said Section 4 simply standardizes the allowances for small procurements to include professional services. He stated it is current law to allow procurement officers to buy almost anything under that cap, and it is logical to allow them to also procure services in much the same way. Number 374 REPRESENTATIVE ULMER expressed concern about the number of small procurement that could be allowed under the services provision. She asked how many the state did each year and if there were limits on the numbers allowed. Number 382 MR. PETTY stated the number of small appropriations done each year varied from department to department. He stated the department would generally not allow a fragmented contract to take effect because of its inefficiency. Number 390 REPRESENTATIVE ULMER stated that with no limits and working under the discretion of a procurement officer, a friend to that officer could be let four or five small procurement contracts. Number 408 MR. PETTY said the law now requires proof that a contractor is clearly the only source of a service under sole source contracts and any abuse of the system would be caught eventually. Number 420 REPRESENTATIVE ULMER commented that designing a contract to identify a contractor as the only source of a service would be easy, and without safeguards, there would be no one looking over the shoulder of procurement officers. Number 430 MR. PETTY said he felt the concern was probably not that great, since the state only lets between 50 and 75 sole source contracts each year. Number 440 CHAIRMAN VEZEY asked Representative Ulmer if she would voice the same concerns regarding Section 5, which dealt with similar limited competition contracts. REPRESENTATIVE ULMER replied she would. CHAIRMAN VEZEY noted Section 7's provisions for criminal penalties for false statements under limited, sole source, and emergency procurement, then called for comments on Section 8, which provided for a wide range of contracts, including cost-plus-a-percentage-of-cost, which had been previously prohibited. He called for comments. Number 489 MR. PETTY noted that current law does not allow cost-plus-a- percentage-of cost contracts, even though in many cases it would give the state a financial advantage. He stated he was in favor of the change because the variations in such contracts could be beneficial to the state. CHAIRMAN VEZEY noted the change in Section 9, which set the timing of filing of appeals on procurement decisions. Number 507 MR. PETTY explained that CSSB 129 (FIN)am cleaned up a confusing situation under the old law, which allowed appellants seven days to file and the hearing officer seven days to respond, which counted against the 15 days the commissioner or department head had to make a final determination. The new language would allow 15 days after the final due date for appeals to be filed as the deadline. CHAIRMAN VEZEY noted the change in Section 10, which added two new exceptions for contracts under procurement laws. Number 526 MR. PETTY stated the two exceptions were being made for good reasons. The first allowed an exemption for contracts outside the country because of cultural and legal differences between Alaska and other countries, such as Japan. The second provided for the letting of contracts for legal work when the Department of Law would be in conflict doing state work, such as when a special prosecutor might be called in. Number 540 CHAIRMAN VEZEY called for comments on Section 11, which deleted the requirement for the chief procurement officer to give written justification for accepting life cycle based contracts on equipment. Number 543 MR. PETTY said the deletion was designed to accomplish two things: to allow the procurement officer to make a determination to the best of his ability while streamlining the process for buying equipment. Number 554 CHAIRMAN VEZEY noted Section 12's incentives and exemptions for renegotiating lease purchase and lease finance agreements for several departments in the state, and noted there was no location given for either Section 12 nor Section 13 to be placed in current statute. REPRESENTATIVE ULMER asked if any other agencies were not addressed under Section 12 that might also be given the same latitudes. Number 567 MR. PETTY stated he believed most lease agreements were made under the Department of Administration, but there could be some problems for the Alaska Housing Finance Corporation and the Alaska Railroad. Number 582 BRIAN ROGERS, VICE PRESIDENT FOR FINANCE, UNIVERSITY OF ALASKA, joined the committee to testify. He stated the University would be concerned specifically with Section 3. He noted the University had recently acquired land and buildings for student housing and had plans to acquire more from Alaska Pacific University. He stated the University had no problem with the one million per year/ten million over the life of the lease agreement provisions of CSSB 129 (FIN)am, but future deals might be put at risk. He stated the University could go along with the reporting provisions, but asked the committee to amend CSSB 129 (FIN)am so the University could expend non-general fund monies for acquiring real property. He also stated the University was in favor of amending the single source, small procurement, professional services provisions. He then presented the committee with drafts of two amendments to accomplish the exemptions he requested earlier. REPRESENTATIVE ULMER said she saw little difference between the two. Number 660 MR. ROGERS stated the first created the exemptions by redefining the lease agreement terms; while the second, which he favored more, spelled the exemptions out in specifics for the University. Number 690 REPRESENTATIVE ULMER asked how the University handled the $25,000 small procurement and how often such procurement were needed, especially those for professional services. Number 693 MR. ROGERS stated the University rarely needed such procurement, on the average of ten to 15 times a year, and as the University looked to cut administrative costs, it would like to see the notification requirements eliminated to streamline the process. TAPE 93-45, SIDE B Number 013 REPRESENTATIVE ULMER asked if the University would ever use small procurement of $25,000 or less to fund faculty positions. Number 017 MR. ROGERS stated it would not. The small procurement would usually apply to building or management consultants hired by the University, and on occasion, for research purposes. He stated that for the most part the University preferred to use competitive bid procedures for professional services. He expressed the University's support of the idea, saying it seemed ridiculous to allow procurement officers to handle contracts of up to $1.5 million, while professional services contracts of $10,000 would have to be reviewed in Juneau unless CSSB 129 (FIN)am was adopted. CHAIRMAN VEZEY stated it might seem to some people that CSSB 129 (FIN)am might have been crafted to prevent circumvention of the state's procurement requirements. He asked if the University's requests might drive a hole in that intent. Number 076 MR. ROGERS stated the University had long tried to uphold state law, and he knew of no time the University had deliberately violated the procurement provisions. He recognized there had been some procurement cases brought, but the University believed it was in the best interest of the state to streamline the process where it could. Number 099 CHAIRMAN VEZEY asked if it might be fair to summarize Mr. Roger's testimony as the University had never violated the procurement codes, so it ought to be exempted from the new law. MR. ROGERS stated he could not say the University had never violated the procurement code, but it was in the best interest of the state to exempt the University. Number 119 REPRESENTATIVE ULMER asked if the Department of Transportation might be effectively hurt by the changes made in CSSB 129 (FIN)am, and inquired how many professional services contracts of the small procurement variety are let each year. Number 134 LOREN RASMUSSEN, CHIEF OF DESIGN AND CONSTRUCTION STANDARDS, DEPARTMENT OF TRANSPORTATION (DOT), stated the department let very few professional services contracts each year, and CSSB 129 (FIN)am would provide few limitations for DOT. He stated DOT rarely used lease purchase or lease finance agreements for airports or seaports, but it might want to in the future. Number 169 CHAIRMAN VEZEY asked Mr. Rasmussen to comment on the use of sole source professional services contracts. Number 174 MR. ROGERS stated it would be very rare for DOT to use sole source contracts for professional services for construction. He said the DOT usually does that work itself, and in the cases of small procurement, it is easy for the department to get at least three competitive bids. Number 197 CHAIRMAN VEZEY noted the short time before the committee members would have to return to the floor for the day's session, and asked the members' pleasure. Number 202 REPRESENTATIVE GARY DAVIS stated the only problem appeared to be those issues with the University. Number 208 CHAIRMAN VEZEY stated he saw some concerns with the professional services provisions and the exemptions from Section 3. Number 212 REPRESENTATIVE ULMER made a motion for a State Affairs committee substitute (CS) to include exceptions for the University, to eliminate the words "by law" from line 22 of page 2, and then to delete the words "does not" from the appropriation language on page 3. She said she would also like to see a mechanism to track the number of single source professional service contracts, which she said was apparently acceptable to the sponsor. Number 267 CHAIRMAN VEZEY said he believed there were enough changes being made to CSSB 129 (FIN)am to extend the meeting, so he would put the committee at ease until immediately after the House floor session. The time was 9:56 a.m. Number 271 CHAIRMAN VEZEY called the committee back to order at 12:36 p.m., immediately following the House floor session. Members present were Representatives Bettye Davis, Jerry Sanders, and Harley Olberg. Number 282 REPRESENTATIVE JERRY SANDERS moved passage of HCSCSSB 129 (STA) from House State Affairs. House Committee Substitute for Committee Substitute for Senate Bill 129 (STA) passed by a 4-0 vote. ADJOURNMENT Number 307 CHAIRMAN VEZEY adjourned the emergency session of the House State Affairs committee at 12:47 p.m.