MINUTES
Advisory Commission on Intergovernmental Relations
Thursday, March 30, 2006

The Louisiana Advisory Commission on Intergovernmental Relations (ACIR) met on March 30, 2006 in the John J. Hainkel, Jr. Room located in the State Capitol Building. Chairman Ronnie Harris called the meeting to order at 1:35 p.m.

The secretary called the roll and the following was noted:

Mr. Guillot noted that the House of Representatives is currently in session and that may be the reason for the representatives' absence.

• Election of chair and vice chair

Mr. Jerry Guillot, commission counsel, stated that the statutes creating the ACIR require the annual election of a chair and vice-chair.

Senator Duplessis made a motion to nominate the current chairman, Mayor Harris, to serve another year as chairman. Mr. Savoie seconded the motion and Councilman Roussel moved to close the nomination. There being no objection, Mayor Harris was reelected chairman.

Senator Romero nominated Senator Duplessis to serve as vice-chairman. Councilman Young seconded the motion and Councilman Roussel moved to close the nomination. There being no objection, Senator Duplessis was elected to serve as vice-chairman.

• Comments by chair and vice chair

Chairman Harris said the make-up of the commission is local government joining hands with the administration as well as the House and the Senate. He said local governments are constantly aware and concerned of legislation that is passed as they are mandated to comply with state law. Chairman Harris said it is hoped that this commission can utilize the resources of the school boards, police jury and municipal associations, in conjunction with the state, so that we may hammer a lot of issues out before they get to the legislature. He challenged the members to take an interest in the commission and apologized for not meeting sooner. Let's use this as a forum, a clearinghouse so that we can move forward for the good of the entire state and its local governments, he said.

Senator Duplessis said she looks forward to serving on the commission and working with the various parishes and agencies. She said it is more critical now that this commission meet considering the issues facing the state, and especially in New Orleans. Senator Duplessis said we will need the input and guidance of people across the state as we rebuild and use the resources that will become available to New Orleans and other parts of the state to bring us back to where we should be.

• Jerry Guillot - general comments

Mr. Guillot provided the members with an overview of the documents in their meeting binders which included the following:

Agenda
Statutes creating ACIR
List of members
Copy of Act 831 of 2003 R.S.
Copy of HCR 290 of 2004 R.S.

Presentations:
"A"-Staff Report Electronic Bids for Public Works Contracts by Political Subdivisions
"B"-Implementation of Electronic Bidding by LADOTD
"C"-Reverse Auctions: A New Way of Buying for Government- Professor David C. Wyld

Mr. Guillot stated there are two purposes of the meeting today, electronic bidding and reverse auctions. He said that Act 831 of 2003, tasked the ACIR to work with the chief information officer of the Division of Administration to come up with standards that would permit the receipt of electronic bids by political subdivisions in public works contracts.

• Presentations

Mr. Guillot provided the commission with "A Staff Report", which is attached hereto as "Presentation A". He said the first couple of paragraphs is a repeat of the law and a highlight of the things we are speaking to today and, a brief recap of the Public Bid Law is also included in the document. Mr. Guillot said the public works law, which relates to construction, buildings, highways, and capital outlay is applicable to all entities at the state and local level. He said there are certain requirements that cannot be waived and must be followed, i.e., requirements for advertisement, plans and specifications and making those available, plans for the required number of advertisements and when you can advertise and how many days within a period of time. He said there are provisions that require authorized deposits for bid documents and there are issues relative to bidding. He said that current law permits public bodies to use the internet to inform people of bids as a supplement to the normal process in the newspaper. Mr. Guillot said the issue of receiving electronic bids, particularly when those bids are also to be filed with bid bonds or checks attached, is not available in Louisiana although the statute states it will be available if we can develop the standards.

Mr. Guillot, referencing Page 4 of the Staff Study, caption entitled "Louisiana Uniform Electronic Transaction Act" stated this basically adopted a model law dealing with electronic transactions both from a private sector and governmental sector in Louisiana applicable throughout almost all of the states in the U.S. He said the commissioner of administration is given authority under that act to look at trying to make it workable and consistent in government action. This law does not require any governmental body to use an electronic document but sets out the standards if you use it. Mr. Guillot said a few years back the commissioner of administration adopted an administrative rule that set the standards for electronic signatures in Louisiana. He said there are also some general standards that have been published through the Division of Administration that are applicable to the executive branch in state government.

Mr. Guillot said that pursuant to Act 831, he brought a group of individuals together to try to put together recommendations for standards to present to the commission. He said they discussed the pros and cons but didn't get much further because they didn't have a functioning model to work with. Since that time, DOTD has established a customized electronic bid process for highway projects.

Chairman Harris asked if the DOTD process is recognized by law and if that will set the standards for electronic bidding. He also asked if the law provides for optional electronic bidding or does it replace paper bids.

Mr. Guillot said yes, the process is recognized by law but the commission will have to decide the standards. He said that on the highway construction side there has only been one vendor involved. Mr. Guillot added that the commission, in setting standards, should consider that not everyone is at the same level, electronically.

John Oglesby, project control engineer and Steve Cumbaa, construction services engineer, with the Department of Transportation and Development provided the commission with a presentation on the department's electronic bidding process which is attached hereto as "Presentation B".

Mr. Oglesby stated that while the department has a public bid law, they operate under Title 48. He said the necessary legislation has been passed to allow them to receive electronic bids and, while it is optional at this time, they intend to make it mandatory in the future. Mr. Oglesby said in January of this year DOTD began receiving internet bids on construction projects and they continue to accept paper bid proposals under sealed bids. The difference, he said, is they have provided the contractors with an option. He said the response to electronic bidding has been overwhelmingly positive and they expect to require electronic bids by early 2007.

Mr. Oglesby said you need three components for electronic bidding: 1) software to handle on-line bidding; 2) an on-line bidding exchange service; and 3) a computer with Windows 2000 or XP and internet accessible. He said DOTD is a member if AASHTO (American Association of State Highway and Transportation Officials) and AASHTO has developed computer products that are useful for highway bidding and construction monitoring. They are using the AASHTO Expedite program and it is one of the necessary elements to submit an electronic bid under their system. Mr. Oglesby said DOTD uses Bid Express (bidx.com), which is a third party, privately owned company contracted by AASHTO to handle the electronic bidding.

Mr. Oglesby said the system, in concept, is simple: DOTD makes bid data available on the internet to the Bidx website. Anyone interested can download the data to review and determine if they are interested in bidding the job. The bidders pay a small fee through the Bidx website, about $50 a month, and they have unlimited access to bid jobs in Louisiana, access to all the bid documents, software needs and support they need. He said with the paid access they acquire an electronic signature that is unique to the vendor and they are able to submit an encrypted bid through the internet to the Bidx website. A bid can be received on that site up to the time of their posted bid opening. At that time, an electronic gate closes for contractors and they can no longer access the system. This is when the electronic gate opens for DOTD and they can access the system. He said that Bidx does not have access to open the bid, they only know that a document is there. The document is heavily encrypted until DOTD downloads the bid and decrypts the information. As long as the bid is in transit on the internet anywhere in the Bidx system the bid is heavily encrypted. He said the time frame is critical, the electronic gates are critical, the gate is never open but one direction at anyone time. That makes the bidding fairly easy.

Mr. Oglesby said the DOTD requires a bid bond on nearly all projects and it is not very convenient if you can submit a bid over the internet but you have to deal with the paper bond. He said they have worked with Bidx and some other companies to provide the ability to submit an electronic bid bond. This information is provided by on-line surety companies (only two of them) that operates very much the same as any insurance or bonding surety does accept they are purely internet based. If the contractors prefer, DOTD will still receive a certified check, any other approved method of payment or a paper bid bond in a sealed envelope at the time of the bid opening.

Mr. Oglesby said bid security is achieved through the latest encryption technology; secure digital signature; and bids are rendered unreadable by anyone until the bid opening, at which point DOTD is given authorization to decrypt the bids. Mr. Oglesby said the electronic system is much more secure than the paper bid process. He said the encryption technology used by the Bidx system is approximately four times the level required by the U.S. government. Mr. Ogelsby said when the electronic signature is issued, the contractor accesses the Bidx website, they are not talking with a person, they are dealing with a computer. He said there is a series of steps they have to go through using various random number generators and things that create a unique electronic signature. He said it is so secure that the Bidx people cannot help the bidders. If they lose their electronic signature, they have to buy another one.

Mr. Oglesby said the other part of the security is the time gates and keys. No bid can be submitted without an electronic signature; it can only be submitted up to the official time of the bid opening; and at that point they can no longer access the system. At the time of bid opening, DOTD can access the system with their key, download the bids to their system where they have the software to decode it.

Mr. Oglesby referred the commission to the Bid Express system information in the presentation which reflects what you see when you access the Bidx website and how to get information on highway construction bid projects at DOTD. Mr. Oglesby said Louisiana is one of about 25 states that are currently receiving internet bids, about six of the states are receiving nothing but internet bids for highway construction. He said there are benefits to both the department and the contractors, which are described at the end of the presentation document attached hereto as "Presentation B".

Mr. Oglesby said current law still requires DOTD to charge for proposals but there is legislation proposed that will allow them to issue proposals in an electronic format without charging the contractors. He said they are continuing training with the contractor community and have conducted training for more than 100 contractors.

• Discussion

Senator Dupre asked if there is a fee to DOTD or public entities on the other side.

Mr. Ogelsby said AASHTO has a suite of construction projects, the more you own the cheaper they are to acquire additional modules. DOTD currently uses two of the major suites and it costs the department $40,000 per year for the licensing for the system. He said they also have an annual license with the info tech system which is not specific to this software product but to the AASHTO agreement that runs about $12,000 per year.

Senator Dupre asked if DOTD is considering utilizing bids for the flood control/hurricane protection division of the department?

Mr. Oglesby said they are not at this time other than the efforts that are going through the entire state. The systems in place are purely for construction contracting.

Senator Dupre asked if a local government entity had the authority to contract with DOTD if they were doing a parish road and wanted to get more participation through electronic bidding.

Mr. Oglesby said there are provisions in Title 48 where they can work with local entities and they would be eligible to participate through their electronic bidding system.

Senator Duplessis asked if the system that DOTD is using pushes the bids to the contractors that are members, i.e., via e-mail?

Mr. Oglesby said no. He said they are required by law to advertise in the Baton Rouge paper and on their internet website which they continue to do. He said the same information is placed on the Bidx website.

Senator Duplessis stated that it is incumbent upon the contractor to go look for the information versus it being actually sent to them. She asked if it would it be beneficial to consider pushing the bids to the members subscribed to the service.

Mr. Oglesby said it would certainly benefit the contractors that they contacted but there is concern in omitting someone. He said the third party service is who they pay the subscription to and they do not send a notice out to the list of prospective bidders for specific lettings.

Senator Duplessis expressed concern about smaller contractors who are perhaps not as sophisticated with the internet and the effect future mandatory electronic bidding might have on them.

Mr. Oglesby said the department shares those concerns. He stated there are two levels of construction bidding. The jobs that are done through DOTD headquarters are the ones that will eventually be mandated as electronic bids. He said the DOTD districts work with what are called letter bids which typically are the smaller contracts and, at this time, they cannot submit bids over the internet for those smaller jobs. Mr. Oglesby said DOTD Deputy Secretary Cedric Grant is working on ways to make sure these smaller contractors aren't marginalized by this process. He said there are several ideas being put forward which is part of the reason they are offering the training so that people can see what is required and how it is done. The costs are real but not prohibitive. He said it costs $25 to buy a proposal from DOTD and $50 a month to be on the electronic website. So, anyone that is acquiring two projects a month for a bid is already at the break even point. Costs are minimal but they are concerned with those that are not internet savvy. He said most public libraries now have internet access and technology is becoming more widely accepted and understood.

Chairman Harris said if the person is paying $50 a month to participate in electronic bids it would probably be a good idea for the vendor to include the feature to notify the members so that they know of everything that is out there for bid.

Mr. Oglesby said he'd be happy to make the suggestion. He said the vendor is dealing with 35 states now and he doesn't know how they might handle some form of notification to every potential bidder in every state which is what they'd have to look at.

Mr. Steve Cumbaa said that the people that are paying for the service know that DOTD projects are going to be advertised every 30 days and they know when the department has lettings. He said that is their job, their livelihood. He said to remind them is just like the pop-up e-mails you receive.

Mayor Normand asked if they ever have a bid that is less than $100,000 and if they have a way to accept both electronic and paper bids for the same project.

Mr. Oglesby said no. It is required that they use one method or the other. He said one of the problems is if the documents were generated at exactly the same time they should be identical documents but in fact they might end up with a slight difference in the bids. Rule of a thumb in the industry is that paper overrules electronic transmittal. Mr. Oglesby said they want to encourage people to use electronic bidding.

Senator Duplessis clarified the mayor's question which is can you accept either an electronic bid or a paper bid from a company - do they have a choice and the answer is yes, they have a choice.

Mayor Harris asked if they know if Bid Express has expanded their market to include other infrastructure improvements, i.e., from another arm of government such as a sewer plant?

Mr. Oglesby said not to his knowledge.

Councilman Young said local governments have different priorities with flood and hurricane protection and said they are interested in doing electronic bidding in Jefferson Parish. He asked if they are aware of any other companies that would allow Jefferson Parish the ability to utilize electronic bidding if it doesn't deal with a road project.

Mr. Oglesby said yes there are other methods besides what is used by DOTD and that he thought representatives from some of the companies are at the meeting today.

Senator Romero asked if any of the maintenance/mowing work through DOTD is being bid electronically.

Mr. Oglesby said yes, this work comes under the general term of construction. They are using electronic bidding for the construction bid process through the DOTD headquarters and that includes maintenance, mowing and a variety of projects that are not typical highway, street, and bridge type projects.

Senator Romero said it might be helpful to parish governments and municipalities if they could take advantage of the pricing the DOTD realizes through electronic bidding on these type projects.

Mr. Oglesby said they will be happy to help them access the prices they are receiving for such work.

Mr. Cumbaa said all bid tabs are on the internet bid page at the DOTD website and can be accessed by anybody at any time.

Senator Romero said we should take the initiative to connect the dots for those in local governments in being aware that this information available.

Mr. Oglesby said he'll be happy to cooperate in anyway they can.

Chairman Harris said it is good public service to other governmental agencies to let them know the information is there.

Mr. Guillot introduced individuals representing state agencies, Jerry Jones, director of the Office of Facility Planning and Control, Division of Administration; Dr. Allen Doescher, state deputy chief information officer, Division of Administration; Denise Lea, director of State Purchasing, Division of Administration.

Jerry Jones said his office has been following this very closely. He said they are interested but not as far along with electronic bidding as DOTD is. Mr. Jones said they want to do anything they can to encourage as many people as possible to bid their work. He said they have recently implemented a procedure whereby when they advertise their projects in the newspaper whoever is registered on their website receives an e-mail notification they can click on to see the advertisement. Mr. Jones said they have done the same for architect and engineer selection as well as contracts. He said they are not quite at the point of receiving electronic bids, adding there are a lot of vendors offering the service. Mr. Jones said they currently have a lot going on in dealing with the disasters and repairing the facilities. He said this is all the more reason why they moved fairly quickly to do some electronic advertising because they fear running out of contractors. He said all contractors in Louisiana need to know that they have work available to bid on. Mr. Jones asked the commission members to encourage any contractors in their areas to visit the facility planning website and register for their list service so that they be made aware of the projects being advertised.

Chairman Harris introduced individuals present representing local governments: Roland Dartez, executive director, Louisiana Police Jury Association; Tom Ed McHugh, executive director, Louisiana Municipal Association, and Sonny Savoie, Louisiana School Boards Association. He also recognized other organizations represented at the meeting: Derrell Cohoon, chief executive officer, Louisiana Association of General Contractors; Gary O'Reilly, representing the AIA Louisiana/Louisiana Architects Association; and Greg Kleinpeter, Aeplans.

Mr. Greg Kleinpeter, president of Aeplans, appeared before the commission. Mr. Kleinpeter said they are a Louisiana-based company formed in 2002, located at the Louisiana Technology Park in the Bon Carre Industrial Center. Mr. Kleinpeter said there has to be a flow of information from the owner through the design professional to the bidding community and their company distributes this information electronically for bid solicitation, i.e., the specifications, the plan pages, the front end documents which explain the rules, regulations, and laws that have to be adhered to. He said they charge the owner, typically through the design professional, a one time upload fee and then all the interested parties can receive the documents free. He said this process develops competition and meets public bid law. Mr. Kleinpeter said he is pleased to see the commission excited about e-government but there are currently sections in the public bid law that prohibit e-government and the delivery of solicitation documents. He said the laws shouldn't inhibit the electronic delivery of these documents.

Chairman Harris said when he thinks of plans and specs there is usually an amount of money that the contractor pays to get those plans and specs to begin doing the calculations. You're saying your company digitizes that information for a fee to the prospective organization and then that is available to all of the contractors?

Mr. Kleinpeter said they go further. They allow the design professional or the owner to digitize it themselves. He said they supply the software that allows them to convert their documents and upload them to a website. You, as an owner, stay in control of the documents. Once you reach the website, which has a public section or a private section, the recipients have total access without any cost. We are the only electronic company out there that deliver electronic documents that meet public bid law. He said there is a problem in the public bid law as it states the prime bidder has to get one free set of documents. It doesn't say a paper document but we were told the intent of the law was paper because there was no electronic bidding when the law was written. We unsuccessfully tried to change the law to read electronically or paper. Mr. Kleinpeter said their company has had to seek business in other states that have more open bid laws to sell their services.

Councilman Young said Act 831 was passed in 2003 charging the commission with developing standards to allow electronic bidding to go forward but those standards haven't been developed. He said the Jefferson Parish legislative delegation has submitted legislation that would permit local governments to develop the standards for electronic bidding if the commission fails to do so. He encouraged the commission to do anything it can to expedite the process.

Chairman Harris said he is aware of the legislation but as indicated by Mr. Guillot, the issue of developing standards for electronic bidding was still at the staff level.

Mr. Guillot concurred, stating that there were several circumstances that occurred along the way affecting the workgroup, i.e., there was not a chief information officer for the state at that time; the membership of ACIR somewhat changed during the change in administrations; and, frankly, he said, there was no working model of what this was all about until DOTD put their process together this year. Mr. Guillot said he isn't sure how much of it we can use in developing standards. He said a lot of people participated in the workgroup meetings and there is no blame to lay to the commission, especially to the chairman, who has been one of the most ardent supporters. We just haven't gotten to the point to give the commission enough information to move forward until now.

Ken Naquin, executive director, Louisiana Association of General Contractors, appeared before the commission. He said they support electronic bidding and worked with DOTD in developing their process for electronic bidding and have encouraged the contractors to attend the educational classes and do electronic bidding. From an owner's and public owner's standpoint it is almost fool proof. You no longer may have irregular bids for not filling something out, not signing something, or from a mathematical mistake. It will actually save the state and local government money in the long run. Mr. Naquin said it would be a great help to those bidding work if procedures are standardized, statewide, for all local governments. He said they share Senator Duplessis' concern about the small contractor being left out. Mr. Naquin applauded Mr. Kleinpeter's remarks but added that he is not the only business that has an electronic service in Louisiana. He said his company has the service as does F.W. Dodge.

Mr. Guillot said the second task requested of the commission by the legislature is to look at alternative methods of bidding, particularly reverse auctions (HCR 290 of 2004 R.S.). The resolution requests ACIR to look at the applicability of this alternative method of bidding and report back to the legislature.

• Presentations

Dr. David Wyld, Maurin professor of management at Southeastern Louisiana University, provided the commission with a presentation on reverse auctions: A New Way of Buying for Government, which is attached hereto as "Presentation C". Professor Wyld said he heads up a center at the university that studies electronic commerce and electronic government. He said he has been working on several subjects relating to auctions both for procurement and asset disposition.

Professor Wyld provided the commission with an overview of reverse auctions; the potential for savings through reverse auctions; benefits to buying/supplier organizations; circumstances when you should consider using reverse auctions in the governmental arena; reverse auctions in the public sector, generally and reverse auctions in the context in Louisiana.

Professor Wyld said in reverse auctions there is one buyer with many sellers trying to compete for the business. In a forward auction you have ascending prices and in reverse auction descending prices. The goal is to decrease the price that makes it suitable for procurement situations. In reverse auctions, prices decrease over time. He said it is an opportunity to find a perfect cost, supply/demand situation at a given point with a given set of circumstances. Professor Wyld said there are a lot of different varieties of how this can work in terms of the setup of the arrangement. He said the trend lately has been to monetize a lot different factors into the buying situation. He said visible price reverse auction bidders can be online and see the price at the current time and decide whether to bid or not. He said the price is not shown to the bidders, instead they are only aware of where they are in order of relation to the "winner".

Professor Wyld said reverse auctions are an e-procurement tool that is being used by many of the leading companies in the U.S. and around the world. He said in 2000, only the largest companies were using reverse auctions but today, reverse auction software is becoming more affordable and accessible. In the private sector, small businesses are able to use reverse auctions for their procurement operations, and we are also seeing, in governmental operations, the ability for not just larger states but local jurisdictions and associations, as well. Professor Wyld said the principal motivation for entering into a reverse auction is to come up with a better price and savings for the taxpayer through the events. He said the cost savings can range anywhere from three to 20 percent and there will be events where cost savings of 40 to 50 percent or more can be derived. Reverse auctions are not just for goods but can be used for services as well.

Professor Wyld said one of the misnomers about reverse auctions is that they are typically used mostly for indirect purchases for commodity type items. It is much easier because you can be very specific in setting out the specifications. For indirect purchases the incentive is the bulk of the purchasing activity. It does not account for a lot of dollars but it does account for a majority of the activity. For direct purchases of more specific items you are looking at a higher dollar volume but less purchasing activity.

Professor Wyld said the most significant benefit to the purchasing agency/buying organization is the reduction in negotiation time and effort; improved pricing, more representative of the market; introduction to new, quality suppliers; improve internal processes; shorten overall procurement cycles; improved decision making capabilities; provides market transparency; compliments other supply chain initiatives; more market feedback and competitive position; typically faster turnarounds and decisions from buyers; typically tighter requirements; value-added positions stay in tact; introduction to new business opportunities; and fair and ethical process. He said by opening up the competition you find new companies willing to participate to get an opportunity to bid, whether in the public sector or the private sector.

Professor Wyld said you should consider using reverse auctions only when it meets the procurement goals of your agency. He said most sealed bid processes can be converted to a reverse auction. You can also look at the savings from better prices, and you also save by making the process electronic. In terms of other goals, if you are looking to open the supplier base, include more disadvantage businesses, reverse auctions is an excellent opportunity to recruit them into the supply base. What is critical for reverse auctions to work is there has to be three or more suppliers, selection criteria are quantifiable, and where there needs to be more price competition, a clear bidding spec and a level playing field can be established.

Professor Wyld discussed the potential role for reverse auctions in the public sector, which is also attached hereto in "Presentation C". He said what we don't take into account sometimes is the purchasing power the government has, i.e., the state of California takes in more revenue than Wal-Mart; 28 states would rank in the Fortune 100; all states and the District of Columbia would be ranked in the Fortune 500; and 48 cities and counties would be ranked in the Fortune 1000. Professor Wyld said the most recent overall report on the use of reverse auctions by state governments show that there are 32 states that have legislative authority to use reverse auctions and 13 states have actually conducted reverse auctions. He said that 18 states have state regulations prohibiting reverse auctions or are not clear on allowing reverse auctions. Louisiana currently does not have purchasing authority for reverse auctions.

Professor Wyld, looking at what has occurred insofar as activity in terms of states and reverse auction sourcing said the top five states are Texas with 177 million through reverse auctions, a savings of 2.7 million. Pennsylvania has the longest experience with reverse auctions and their savings was at 36.2 million. He said a report from the Government Performance Project show that in 2004, states collectively spent $151 million acquiring goods and services through reverse auctions, with a prediction that number will triple by next year. We are seeing more and more state government activity in the use of reverse auctions.

Professor Wyld said the potential for Louisiana government in general is an issue for all levels of government in Louisiana to consider for their use and potentially through cooperative endeavors. Nationwide, one of the leading users of reverse auctions is the L.A. County School District. He said there are also cooperative purchasing groups of counties and school districts that come together and by combining size on procurements they create scenarios of more interest to the vendors' companies and widen the supplier base. He said that one of the important things here is that by moving to reverse auctions as a tool, when appropriate, you are benchmarking the best practices not only for the private sector but all levels of government across the U.S. He said what has been proven in reverse auctions is that you are looking at the ability to produce a net savings.

• Discussion

Senator Duplessis asked what makes reverse auctions so different as it relates to what we normally do.

Ms. Denise Lea explained that there are different models in reverse auctions. She said there is a model where vendors are actually seeing the prices being bid as it is coming down.

Senator Duplessis asked Professor Wyld if, in his experience, the reverse auction process hurt a small business person or a new business person.

Professor Wyld said there are two things that can be done in terms of the structure of the auction that can help level the playing field. You can give numerical values and monetize different factors like quality and delivery time. He said you can also do that with a small or disadvantaged business and give a weighting to that so that the value of the bid changes as to whether it comes from a small business or a large business. He said at the federal level, and somewhat at the state level, they would have auctions that are open to all businesses to participate or there would be auctions carved out where only small or disadvantaged firms would be allowed to participate based on a dollar amount.

Senator Duplessis said he indicated that a municipality or government should design or decide their goals and objectives prior to considering the reverse auction method. Have we done that? Do you see this enhancing our current practices?

Ms. Lea said she certainly sees it as a tool we should be able to use. It is a positive tool that has been used in other states. She said we do have some challenges with our statutes, particularly with our preference statutes. Ms. Lea said it is also dependent upon the commodity area and we'd have to be very sensitive on the commodity area you choose. I would debate the professor on one area, that it shortens the process. She said the initial receiving of the pricing is a shorter process and you know exactly what you are getting ready to buy but the length is added on the front end because you do a total pre-qualification of what product your going to provide and who you are going to let play in the field.

Senator Duplessis asked, as it relates to segmenting the purchasing amounts based on revenue ability to handle a certain project, if we could consider breaking large contracts into smaller portions in order to allow people to bid on portions of an amount.

Ms. Lea said, in the state contract area we can tier the pricings, but paper is a prime example of one that would be difficult to do because you have an in state manufacturer, he gets a preference. Small businesses trying to claim that same preference to that manufacturer won't label the project for him to distribute like he will his prime contractor. So, she said, you get into some very sensitive areas, not just statutorily, but it's just how business is done.

Senator Duplessis said it is her understanding that this commission has been designed to understand those challenges as well as the things that are causing some of the inefficiencies in purchasing in government. She said some of that is going to a more electronic way of doing things. We need to hear that there are some challenges to the things that we are going to be making recommendations to do so that if, legislatively we need to make changes, we can do so.

Ms. Lea said she will be happy to assist. She said from her attendance at the national conferences and from vendors' perspectives, as we approach this as a state, we want to be sensitive in trying to do something in a uniform manner.

Mayor Normand asked how do you know that the person that comes in with the low price has a warranty that you are buying a quality product?

Ms. Lea said that is where the work comes on the front end, in the pre-qualification of the vendor. She said you set the criteria and you also review the product.

Mayor Normand said his town is going to be purchasing a copier. He said the maintenance and service of the copier is very important. How do you divide that up?

Professor Wyld said the software used for reverse auctions could take that into account and weight the different factors so that the vendors would all be taking all that into consideration.

Mayor Normand asked if we are talking about the state being allowed to utilize reverse auctions and the municipalities feed off of that or are we talking about any governmental entity being able to conduct reverse auctions?

Chairman Harris said it is his opinion that first we have to get into electronic bidding, the uniformity of it. He said he thinks many of the questions we have are legitimate questions that have been answered through the experience of the 32 other states that are doing this. He said we need to explore those items. Chairman Harris said he'd like to see us move forward to where we have the ability to save the taxpayers money for getting a good or service at the lowest possible price.

Ms. Lea said they have access to the different states that have done reverse auction so they will be able to identify those areas that have been effective in the other states.

Dr. Wyld said, from his perspective, there would be an ability to have a mechanism to aggregate demand for items in specific categories between the state and parishes so that you could create situations that are larger contracts. The parishes and municipalities could buy through reverse auctions and obtain prices on computers or commodities far better than any individual type of procurement.

Ms. Lea said if you want to be able to weight the factors into the award we're going to have to do some changes to all the statutes.

Mr. Savoie said he is familiar with the Texas Association of School Boards and their procurement process. He said it has been a cost savings for them, has streamlined the process and saves the local school districts a lot of money. Mr. Savoie said he thinks this is a worthwhile effort and a project that the state ought to get behind.

Mr. Derrell Cohoon, chief executive officer, Louisiana Association of General Contractors, appeared before the commission. Mr. Cohoon said that AGC is a statewide trade association representing construction companies, suppliers, and subcontractors. He said they have a great deal of experience in both public bidding as well as working in the private sector. Mr. Cohoon said he can't speak to the issue of the procurement of goods but because of the experience they have he spoke to the issue of procurement of construction services. He said there is a huge difference between procurement of goods and construction services. He said they have some experience in the private sector with reverse bid auctions. Mr. Cohoon said he is opposed to the reverse auction process in construction services as he believes sealed bids are the best way to procure. Every project that is built is unique in itself, they all require different specifications.

Mr. Cohoon encouraged the commission to not consider reverse auctions with respect to construction services. He said Dr. Wyld spoke of it being a fun process. Mr. Cohoon said it is not a fun process for bidders when you are watching your competition continue to undercut each other to the point where you know, as a trade association executive, that they can't perform. That's not good for the state, not good for the construction industry and not good for my association.

Chairman Harris asked Mr. Cohoon if he has talked with other members of the industry in some of the other 32 states that conduct reverse auction that gives you the experience to make the comments you made?

Mr. Cohoon said yes, there are 101 Chapters of AGC in the country and this issue has been before the AGC the past three years. The AGC has had a bad experience across the board with respect procurement of public sector construction projects under the reverse auction method.

Chairman Harris said he has had the same problem with sealed bids in his community. He said you have rogue contractor out there and pre-qualification may eliminate some of those concerns.

Senator Duplessis said you made some really good points. She asked if there some analysis of a company's capacity, their financial situation, that would also give you some indication before you accept a low bid that the company has the capacity to perform the work.

Ms. Lea said they do have the ability to determine responsibility but if we determine a vendor not responsible we have to give him the right to a hearing. She said "responsibility" gets into the financial capability of the company to perform.

Senator Duplessis asked, in a reverse bidding process, do you have that information up-front.

Ms. Lea said it is done in different ways, not one set way. We may go into the bid and say you must have had experience in this type of contracting for x number of years or you must have been in business for x amount of years. She said that is dangerous in some areas where you have new companies coming in because you're penalizing those new companies. Then you might have to look at a different area. She said we do require performance bonds and if they could provide one, typically, they are required to show financial capability to a bonding company.

Senator Duplessis said this is normal circumstances, she is asking about reverse auction.

Ms. Lea said you could still do that. Professor Wyld said, in the private sector, if they saw the rogue bidder and went 20% below where he should have been, they wouldn't be obligated to accept that. The situation is not that they have to take the lowest bidder. He said the state would need to do the pre-qualification/pre-screening and bonding.

Councilman Young asked of the 32 states that presently utilize the reverse auction process, how many of those exclude construction services?

Mr. Cohoon said he is not sure but will get the answer and Chairman Harris asked that he provide it to Jerry Guillot.

Jerry Jones stated that he is of the opinion that low bid doesn't work for construction projects. If you put low bid and add low, low, low bid it is going to work even worse. There are good contractors across this state who refuse to bid public work. He said he has contacted contractors to ask why they aren't bidding on state and local projects. The reply is I don't want to go against the least common denominator and that is what you are going to get. You're not going to get the best quality, you may end up with the lowest price but you are going to get what you pay for. I've been in discussions with the AGC and the ABC about doing something about low bid. Low price isn't always the best thing for the citizens of Louisiana in your communities. We need to get the best quality at the same time. Some time the best quality costs more. The key to making this work is you must have some form of pre-qualification system so you have equal quality bidding against each other. I'm still concerned that you will get that renegade out there who is going to underbid everyone else.

Professor Wyld said the devil is going to be in the details. It is going to be up to Ms. Lea and her staff to sort this out. It is in the pre-qualification process and the design of the auction itself. There have been reverse auction events where price was not part of the equation. Maybe there was a first stage of the auction where it was dealing with delivery time, quality issues, and other different factors and then those bidders that could satisfy those requirements moved on to a second stage where price became an issue. So, it gets into the pre-qualification process and the actual auction design. That can alleviate some of these concerns.

Maria Bowen, Louisiana Associated Builders and Contractors, appeared before the commission and she concurred with the comments made by Derrell Cohoon and Jerry Jones. She said in their experience with reverse auctions on the construction side, people start with a much higher bid to give themselves room to drop down. To sum up what they have learned with reverse auctions is that low bid does not mean lowest bid and lowest bid does not mean responsible bid. Ms. Bowen said there is a professor at the LSU Construction Management School, James Gill, who has been working on a study, as well. She said the commission might want to consider asking him to present some of his information as it relates directly to construction services. In regards to other states, she said she sent out a list of questions to 94 Chapters of ABC around the country and she received 15 replies. Generally, she said, that means the others hasn't dealt with reverse auctions in this capacity. Of the 15 Chapters that responded, Florida had not gone well; TX defeated legislation trying to authorize reverse auctions and the rest had conversations about it but was waiting to hear back from the Army Corp of Engineers on what happened in the federal arena before they looked at it statewide. Ms. Bowen provided the members with a two-page document entitled "Final Report U.S. Army Corps of Engineers Reverse Auctions Pilot Program, which is attached hereto as Exhibit 1.

Rick McGimsey, assistant attorney general, appeared before the commission. He said the problem right now is the state has a statute that authorizes them to sell surplus moveable property via internet auction site but political subdivisions do not. The commission, as it moves forward, might want to look into how we can take our existing laws that set up auctions and sales of surplus moveable property for political subdivisions and somehow fold those into a system that we can also allow them to sell that surplus property over the internet. The state has had good results with their internet auctions and other states have done so as well. We just don't have the statutory authority to allow political subdivisions to do that right now. He said he receives a lot of calls from political subdivisions questioning if they can do so.

Councilman Roussel asked if we could survey the states currently conducting reverse auction to get some feedback, possibly a simple e-mail to the director of state purchasing in all those states with two or three questions as a sample survey.

Chairman Harris said he would ask Mr. Guillot what capabilities the staff has. One of the problems that have taken so long to talk about the electronic bidding is because this commission does not have staff, we rely on the good graces of the LA Senate and certain staff members to assist us and they are in the middle of a legislative session.

Mayor Normand said anytime they have surplus property to sell they send the information out to LMA members and it would be great if they could circulate it to other entities.

Mayor Harris said his community does auctions, that they partner with the city of Westwego and it is amazing what people will pay for your junk.

Mr. Guillot suggested that he arrange another meeting with the workgroup, which consists of the state CIO & staff, attorney general staff, contractors' organizations, and others to gather more information from their respective contacts and try to put together potential standards on electronic bidding for the commission's consideration and whatever additional information they can find on reverse auctions in approximately four weeks.

Senator Duplessis asked Mr. Guillot to prepare draft legislation that would allow municipalities to sell over the internet.

Chairman Harris said we have heard various testimony about electronic bidding and reverse auction and agreed with Mr. Guillot's suggested course of action and the commission concurred.

Mr. Greg Kleinpeter asked to clarify that there is a major difference between the dissemination of the information in the bid solicitation documents and in the bid submittal / reverse auction. As a vendor, in his opinion, those are two different services and typically are served by different vendors. Particularly, having bid submittal without a good system in place to disseminate the bid solicitation documents, particularly in the construction side, you almost have the cart before the horse. You have to get the information out as to what you want people to bid on before they can offer a bid submittal. He apologized, stating he didn't mean to represent that his company is the only vendor that did electronic bid solicitation documents. Mr. Kleinpeter said they are the only bidder, that he knows of, that does it free to the recipient. He said there are two different steps, all they do is bid solicitation documents. The dissemination of wide-format documents, plan pages is a total different service. All we do is distribute construction documents and we do it quite well.

Chairman Harris said he understands through testimonies that this service is available in a lot of different formats. Given that, the commission's duties are to try to present a uniform standard so that everybody has the same marching orders. This commission is simply going to make recommendations, it will be up to the legislature to change any laws in that aspect.

Mr. Kleinpeter said that is the whole pillar their company is based on. Their logo is the standardization of the service of the delivery of the construction documents. He said when you look at what they do in building a standardization across the United States that every time a contractor goes to look at construction documents they are in exactly the same format, exactly the same technology. All we do is distribute construction documents. I think the commission has a job ahead of them.

Chairman Harris noted that the representatives of the Louisiana Municipal Association are present and that the LMA supports the commission in continuing this process.

Following discussion, Mr. Guillot suggested April 27 at 1:30 for the next commission meeting and the members present agreed.

There being no further business before the committee, Councilman Young made a motion to adjourn. Councilman Roussel seconded the motion and there being no objection, the commission adjourned at 4:00 p.m.

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Ronnie Harris, Chairman