The 3rd meeting of the Interim Joint Committee on Licensing and Occupations was held on Tuesday, August 11, 2009, at 1:00 PM, in Room 129 of the Capitol Annex. Senator Gary Tapp, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Gary Tapp, Co-Chair; Representative Dennis Keene, Co-Chair; Senators Tom Buford, Perry B. Clark, Julie Denton, Denise Harper Angel, John Schickel, Dan "Malano" Seum, Kathy W. Stein, and Damon Thayer; Representatives Tom Burch, Larry Clark, Ron Crimm, Tim Firkins, David Floyd, Joni L. Jenkins, Adam Koenig, Reginald Meeks, Charles Miller, David Osborne, Darryl T. Owens, Ruth Ann Palumbo, Carl Rollins II, Sal Santoro, Arnold Simpson, Ron Weston, and Susan Westrom.
Guests: Richard Moloney, Commissioner, George Mann, Deputy Commissioner, Ken Leathers, Chief Electrical Inspector, Office of Housing, Buildings and Construction; Richard Vincent, Executive Vice President, Associated General Contractors of Kentucky; Buckner Hinkle, Jr., Stites & Harbison, PLLC; Daniel Adams, PE, Thermal Equipment Sales, Inc.; Paul Ganoe, Director, Division of Engineering and Contract Administration, Hiren Desai, Deputy General Counsel, Finance and Administration Cabinet; and John Brazel, Assistant Executive Director, Associated General Contractors of Kentucky; Charles Lovorn, Executive Director of the Kentucky Association of Highway Contractors.
LRC Staff: Tom Hewlett, Committee Staff Administrator; Bryce Amburgey; Carrie Klaber; Michel Sanderson; and Marlene Rutherford
Minutes of the July 10, 2009, were approved as submitted without dissent.
First on the agenda were representatives of the Office of Housing, Buildings and Construction; Richard Maloney, Commissioner, George Mann, Deputy Commissioner, and Ken Leathers, Chief Electrical Inspector. They discussed the new changes to the state electrical code, how constituents may be affected, and what the agency is doing through inspectors or supply houses to get the word out that there will be a new electrical code enforced beginning September 1.
Mr. Mann stated that September 1 is the date the department would begin enforcing the new state electrical code which was approved July 29. Any requests for permits submitted for building construction on or after September 1 would require compliance with the new electrical code. Notification of the new code has been accomplished through e-mails to local governments, building inspectors, fire officials, and administrators. Mr. Leathers said that notices have also been sent to all certified inspectors, active and inactive, who will notify electric companies and local supply houses.
Senator Tapp asked, for clarification, if a permit was pulled in July for a construction project the new permit would not come under enforcement of the new electrical code. Mr. Leathers indicated that was correct. Senator Tapp also asked if there was a timeline to allow supply houses to get rid of old receptacles. Mr. Leathers indicated it would take 30-40 days which would depend on the amount of supply in inventory.
Senator Tapp asked for an overview of situations that have the most drastic change in the code. Mr. Leathers indicated it was in single family dwellings. He said arc fault circuit interrupters have been required since 1999 in bedrooms but now they will be required in other areas of the home. He also explained that an arc fault circuit interrupter is a device designed to detect any arcs in a circuit, especially extension cords. It is a safety device to prevent electrocution and fire.
Representative Meeks asked if the new code was just for new construction. Mr. Leathers said it was. Representative Meeks also asked if an individual wanted to retro fit their home with the new upgrades how would they go about doing it. Mr. Leathers indicated that it would depend on how the receptacles are wired and said that a new receptacle could always be added to feed an old receptacle, as long as they do not share a conductor.
Representative Owens asked if an individual wanted to renovate a home after September 1, would the permit fall under the new code. Mr. Leathers said that it would. If a room was being added and an electrical line was dedicated to the addition, the whole house would not be affected.
Representative Clark indicated that he understood from training seminars, that if fifty percent of a home was being renovated that it would come under the new electrical code. Mr. Leathers was not aware of that provision.
Senator Tapp indicated that electrical inspectors need to know if the fifty percent rule does or does not apply, that all counties need to be consistent. Mr. Leathers said that there was a meeting in Lexington with inspectors this week and that he would relay this information to them.
Mr. Leathers also discussed tamper-resistant receptacles. Tamper-resistant residential receptacles cost about fifty cents more than a regular receptacle however they are for safety. Commercial are more expensive. The new commercial industrial code does not require the tamper proof receptacle.
The committee heard next from Paul Ganoe, Director, Division of Engineering and Contract Administration, and Hiren Desai, Deputy General Counsel for the Finance and Administration Cabinet. They discussed the cabinet’s plans to revise regulations on the debarment of contractors under the Model Procurement Code.
Mr. Desai stated that the proposed regulation is going through the administrative regulation review process. The reason for the proposed changes is a matter of housekeeping for the cabinet and was not filed for any particular issue with contractors. As a result of the public hearing on the regulations, the cabinet requested an additional 30 days to review comments made at the public hearing. The cabinet’s response is due the end of this week on those comments. Mr. Desai indicated that the current regulation states that the cabinet may take disciplinary action against a vendor for certain types of things, most of which are contractual in nature. The current regulation; however, has no definitions. The current regulation also allows for a Chapter 13B hearing process. The proposed changes do not remove the Chapter 13B hearing process. He also said that the proposed regulation does not take away the opportunity for judicial review. Mr. Desai pointed out that the cabinet has only debarred five vendors in the last eight years. The cabinet does not anticipate that by making these changes to the regulation that it would begin debarring vendors on a regular basis. They are attempting to clean up the rules so that all vendors, good and bad, know what the rules are. He said the purpose of the regulation is not to be able to debar more vendors.
Senator Tapp asked if there are no problems with specific contractors, why is the regulation being changed, and if the regulation is going to be enforced would the cabinet not have to have more employees. Mr. Desai respectfully disagreed. Mr. Desai indicated that one of the complaints the cabinet has received through the years concerns the definition of certain items. He pointed out that the statutes have been changed since the regulation was first promulgated and added statutory provisions requiring a suspension or debarment by the state but, the current regulation does not reference those changes. From a vendor perspective, they need one document that outlines all the consequences. Many good comments were received from the public hearing.
Representative Floyd feels that some of the proposed changes are harsh, such as changing the words “may” to “shall.” He is more comfortable knowing that these proposed changes are still in the preliminary stages and are not finalized and that based on the comments changes can still be made.
Senator Stein commented on Section 2, subsection (2)(g) of the proposed regulation regarding the collusion or collaboration in the submission of bids for the purpose of reducing competition. If a person or persons were convicted that would mean that they could no longer contract with the state. Mr. Desai said that was correct, but to the best of his knowledge that provision had not been used to suspend or debar any one.
Representative Keene asked about Section 2, subsection (2)(c). That section states that the failure to comply with the terms and conditions of a solicitation or contract, including failure to complete performance within the time specified in the contract, could result in debarment. Representative Keene asked if that provision would include highway contractors. Mr. Desai said this would be clarified in the statement of consideration that will be filed the end of this week. He said that the highway contractors are managed by the Transportation Cabinet and follow the federal rules for debarment. He said that this regulation would not change how the federally funded highway contracts are managed. Representative Keene also asked about the statement in Section 3, subsection (2)(b) which states that debarment may also include principals or affiliates of the contractor if the principals or affiliates are specifically named and given written notice of the proposed action and provided with an opportunity to respond. Mr. Desai said that one of the ways in which the state manages and regulates state contracts is through the financial system. If a vendor has a taxpayer ID number, that is one of the unique identifiers used to identify which vendors to debar. He said principals and affiliates were included and that is similar to what the federal government uses, but it also allows the state to take action against a vendor if they form another company and continue to inadequately perform. Mr. Desai added that new vendor would receive notice, and be afforded due process under 13B. The regulation is not designed to regulate individuals but companies. Representative Keene also noted that Section 5 states that a bidder or contractor who has been debarred may appeal the action to the Secretary of the Finance and Administration Cabinet. Representative Keene asked if the cabinet is qualified to handle those appeals and treat the contractors fairly. Mr. Desai stated that if an appeal is made to the Secretary of Finance, a hearing officer is assigned from the Attorney General’s Office who then handles the hearing process.
Senator Tapp asked if this debarment regulation as currently written more stringently than the federal regulation as it relates to highway contractors. Mr. Desai said that one area in which the proposed regulation may be more stringent is that debarment may be for up to five years rather than twelve or twenty four months. The reason for that is because there is a five year bidding cycle. This regulation applies to all state contracts with the exception of state highway contracts. He said most of the comments at the public hearing were from highway contractors. Mr. Ganoe stated that the proposed changes to the regulation add clarity for the cabinet. Most of the vendors that have been disciplined under this regulation have been those dealing with prevailing wage.
Senator Buford stated that some of the grounds for debarment under this regulation include a breach of contract, and any breach could be used to justify a five year debarment of a contractor. He said he feels this may be arbitrary and too punitive. The proposed regulation is also flawed because it does not afford due process to a contractor. Senator Buford was concerned that politics could become a factor in eliminating a contractor. Mr. Desai pointed out that the manner in which notices are given or a hearing is conducted is not being changed. The changes that amend the current regulation do not affect the requirement that the cabinet make the preliminary determination regarding vendor suspension. The vendor can then request a hearing. Once the hearing is complete, the final debarment is effective. Mr. Desai said the comments received at the public hearing indicated that this is not clear in the regulation and this will be corrected in the proposed amendment.
Representative Meeks noted there have only been five debarments in the last eight years. He asked how many complaints or cases had been investigated during that time. Mr. Desai said that he was unsure since investigations are performed at the agency level. He added that this regulation should only be used for serious and repeated offenses.
Senator Stein asked what the ramifications would be in the current situation concerning the court action involving Leonard Lawson and his companies. Mr. Desai said that based, on the current and proposed regulation, the contracts awarded by the Transportation Cabinet would not be governed by this regulation because their procurements follow the federal debarment regulation for highway contracts. The Transportation Cabinet would have to modify their regulations on debarment and adopt this proposed regulation for it to apply to the Transportation Cabinet.
John Brazel, Assistant Executive Director, Associated General Contractors of Kentucky (AGC), and Buckner Hinkle, Jr., from Stites and Harbison, a board member of the Associated General Contractors of Kentucky, and Charles Lovorn, Executive Director of the Kentucky Association of Highway Contractors, also discussed their concerns with the proposed debarment regulation.
Mr. Brazel said the commercial construction industry and the AGC members agree that debarment is a serious matter and should be reserved for the most serious violations. Three main changes under the proposed regulation which are of concern are; lengthening of the period of debarment, increasing the types of violations that lead to debarment, and the lack of procedural due process. Under the previous regulation there were nine specific grounds for debarment. Under the proposed regulation, five additional grounds have been added, which raises questions from the AGC membership. Grounds for debarment based solely on breach of contract unfairly penalizes a contractor for infractions for which the law already provides remedy. Public contracts normally include liquidated damages for delays, so would a contractor also be subjected to debarment for five years for being late on a contract. He said that under the previous regulation permissive language is now mandatory. Mr. Brazel indicated that comments have been made to the cabinet and they are willing to work with the cabinet to make the regulation better so that there are fewer unintended consequences.
Mr. Hinkle said that in the proposed regulation there are three classes of violation; criminal, statutory and breach of contract. He said there is already adequate remedy by law and suggested that debarment is not an appropriate remedy for breach of contract. Procuring agencies have all the power they need to exercise penalties for breach of contract. With regard to due process, he said the previous regulation allows debarment for a maximum of two years. By increasing the penalty to five years, he said that consideration should be given as to whether a hearing process in accordance with Chapter 13B is in appropriate, given that the scope of judicial review of those proceedings is limited. He said that when the Model Procurement Act was passed in 1979, the process for an aggrieved contractor was through Franklin Circuit Court. He allowed that if this regulation is adopted the contractor should have the right to go to Franklin Circuit Court in an initial proceeding. He stated that debarment should be the last resort after all judicial remedies have been exhausted.
Mr. Lovorn said there is concern that the proposed changes would allow certain conditions that are part of a single project, or conditions of a contract that could lead to debarment. He stated that under federal guidelines, transportation contractors are exempt from this regulation. Yet even though the Transportation Cabinet projects are exempt from this regulation, there is concern because other contractors that the Kentucky Association of Highway Contractors represents work for the Finance and Administrative Cabinet on projects.
Next, Richard Vincent, Executive Vice President, Associated General Contractors of Kentucky; Buckner Hinkle, Jr., Stites and Harbison; and Daniel Adams, Professional Engineer, Thermal Equipment Sales, Inc., discussed value engineering.
Mr. Adams said that value engineering is a modification that occurs after a contract has been bid, and occurs between bid and award. The intention of value engineering is to find pragmatic ways to get the best value to the state with respect to the expenditure of taxpayer monies.
Mr. Hinkle explained how the current system functions from a procurement standpoint. The preferred and predominate methods of awarding contracts in Kentucky are competitive sealed bidding, competitive negotiations, and noncompetitive negotiations in certain limited situations. Mr. Hinkle noted that school projects are local projects and not necessarily subject to the procurement code. He said it is up to the local governments to opt into the model procurement code.
Senator Tapp asked that staff get information on how many local governments participate in the model procurement code.
Senator Stein said it appeared to her that value engineering would encourage green building. Mr. Adams responded that it could. Mr. Hinkle observed that sustainable design and construction has generated a lot of enthusiasm. One of the requirements in value engineering is collaboration between everyone involved in the project, which is hard to do if the design is 100% complete. Value engineering gives you an opportunity to open up the design and discuss other alternatives.
Senator Tapp said that if there was a base of the cost per square foot for a school building that meets the Department of Education’s minimum standards, then value engineering could be allowed on top of that minimum to be decided at the local level as to what the final product would cost the local school system. If the school system wanted to spend more per square foot it could but the local level would be responsible, not the whole state. He asked that staff look into this.
Representative Owens asked where in the process value engineering comes into play and what the cost was. He also asked about any cost savings split or who receives the savings, the state or the contractor. Senator Tapp said he thought the savings would depend on whether it was a local agency, a state agency or private industry, but everyone would benefit from the savings.
Mr. Adams said that value engineering comes typically after the bids have been received but before award. It could also happen after the award of the contract, i.e. suggestions for that project to bring it more value or save money. Mr. Adams said that value engineering is a proposal and typically there is no charge or fee.
Representative Clark indicated concern that when a subcontractor bids to a general contractor, that contractor shops the bid. His fear is that savings in value engineering may be good for the general contractor, but he expressed concern that the subcontractors also share in the savings. He said that if value engineering is going to be done it needs to be defined so that all the subcontractors become a part of value engineering and participate in the savings.
There being no further business, the meeting adjourned at 2:45 p.m.