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An independent study showed the contractor, Anchorage-based Alaska Supply Chain Integrators, ran the state's bills up $1 million more during a one-year period than the work previously done by state employees in the same amount of time. The study was done at the request of the Division of General Services.

"The evidence is clear that the privatization didn't work," said Sen. Kim Elton, D-Juneau.

Scott Hawkins, president of Alaska Supply Chain Integrators, said the study, prepared by the Anchorage accounting firm of Mikunda Cottrell, was erroneous, and claims his company saved the state a couple hundred thousand dollars.

When legislators passed the law in 2003 to privatize procurement, the rationale was to save the state money. Ten employees lost their jobs when the service for the Alaska Department of Transportation and Public Facilities' Southeast Alaska region was handed over to the private contractor in July 2004.

The company issues purchasing orders for goods and services the department needs for things such as the state ferries. From July 2004 to June 2005, the contractor ordered $11.1 million worth of supplies.

The state paid the contractor a set amount for its service, and the company could not make a profit on its purchases.

Labor unions did not like the freedom that the contract gave to Alaska Supply Chain Integrators. The 2003 bill freed the contractor from the constraints of the state's procurement code, meaning the contractor was allowed to do no-bid purchases for up to $150,000.

"It's a real bad area to contract out. There's a lot of abuse that can take place," said Bruce Ludwig, business manager for the Alaska Public Employees Association/AFT.

The code was adopted in 1988 after lawmakers learned of serious problems with misuse of public funds and conflicts of interest.

National government procurement groups flew to Juneau this year to lobby against House Bill 257, which would have extended the contract.

A lot personality and politics, instead of policy, went into the push to privatize the service and extend it, Sen. Elton said.

Elton said he was against the bill three years ago because privatization done in other states showed that it raised costs. It also was expensive for states to restart their own programs after they decided to discontinue outsourcing the work.

House Speaker John Harris said his thoughts about contracting procurement work began to change towards the end of the legislative session. Harris said he received complaints from companies that the deals the contractor were striking were not fair. Those registering complaints had done business with the private contractor and the state.

Hawkins, of Alaska Supply Chain Integrators, said because the House and the Senate supported the bill, it showed that many had faith in his company. Besides saving the state money, the contractor also installed e-commerce systems for the state that allowed tens of thousands of Web transactions to take place.

"The administration should be acknowledged for trying new things," he said.

John Manly, spokesman for Gov. Frank Murkowski, said the pilot project was useful in gaining knowledge in how privatizing government services work.

• Andrew Petty can be reached at andrew.petty@juneauempire.com.