By Karl Pangelinan
HAGÅTÑA, Guam (Marianas Business Journal, Sept. 12, 2011) – In monitoring federal contracting on Guam, the main question being dealt with by the Guam Economic Development Authority (GEDA) is whether Guam businesses are provided the opportunity to bid on federal contracts, particularly by the military, as the military constitutes 97 percent of all federal contracting on Guam.

GEDA-published reports indicate that from 2000 to 2009, Guam prime vendor companies received 47 percent of the total federal contracting dollars on the island. In 2010, according to databases developed and maintained by GEDA, 615 contracts for work performed in Guam were awarded totaling US$971 million. Of this amount, 59 percent of the contracts were awarded to companies with a Guam address equating to only 23 percent (US$220 million) of the total dollar amount awarded. For 2011 thus far, 104 contracts totaling US$231 million have been awarded of which 38 (37 percent) have been awarded to Guam companies totaling US$35 million (15 percent).

Clearly, as prime contractors, local companies receive much smaller contracts. This trend is likely to continue unless the military sets aside more work for small business, makes use of the Historically Underutilized Business Zones program more frequently in contracting or sizes projects based upon local business capabilities.

While the use of local businesses in subcontracting may be substantial, information on local companies performing as subcontractors is not currently available which makes it difficult to determine.

Except for federal Base Realignment and Closure actions, federal procurement regulations allow set asides for "small" business but not "local" business. However, since most Guam businesses fall within U. S. Small Business Administration size standards, GEDA has advocated greater small-business contracting. Local businesses should have a competitive pricing advantage over off-island small businesses as they are already mobilized here.

The military buildup originally sized projects on the basis of a short timeframe for completion, hence the need for large contractors with larger capabilities. Four billion dollars in multiple award construction contract vehicles are in place on this basis with more to come, while only US$1 billion was awarded to small businesses. Since the buildup timeline has been extended, hopefully future military contracts will be sized to local and small business capabilities.

The federal government obligated US$221 million in business with small businesses or 42 percent of total obligations. More than 70 percent of federal obligations with small businesses were provided to Guam small businesses. Almost 93 percent of all obligations awarded to HUBZone companies went to Guam HUBZone companies from 2006 to 2009. Local business participation in federal contracting would increase significantly if more solicitations for contractual work were set aside for HUBZone companies. In addition, the federal government should be allowed to publicize subcontracting plans for greater transparency with respect to ensuring that prime contractor commitments to local/small businesses are maintained throughout the life of the contract.

In addition, the federal government must provide GovGuam with information on all contracts awarded for work performed in Guam. While Naval Facilities Engineering Command Marianas has been very cooperative in providing information on the contracts it manages, there are more than 3,000 contracting offices within the Navy alone (not including other Department of Defense components) with some of them awarding contracts for work performed in Guam in excess of US$10 million per year.

Over the years, GEDA has been advocating that more of the funding for construction and post-construction support functions be set aside for small businesses. As construction contract vehicles are already in place for the most part, GEDA will continue to advocate for local business participation in prime vendor and subcontractor opportunities. However, GEDA is also looking at post-construction opportunities associated with operations and maintenance of Defense Policy Review Initiative (DPRI) and non-DPRI activities and it believes that local businesses should begin thinking about post-construction opportunities.

GEDA has reviewed expenditure patterns of the military in Japan and conservatively estimates that $200 million per year could be spent by the Navy and Marine Corps in Guam after the construction activity has subsided — in addition to the average US$400 million annual expenditure by all DoD components currently spent for work performed in Guam. As a result of the buildup, Guam can expect increases in service contracts for equipment services, quality control, testing and inspection, medical services, housekeeping, and education and training. The island can also expect increases in the provision of products for plumbing, waste disposal, ship and marine equipment, aircraft and airframe components, mechanical power transmission equipment, and other products and supplies.

While it is understood that local businesses may opt to remain as subcontractors for various reasons (inadequate bonding capability, lack of audited financial statements, burdensome federal reporting requirements, etc.), other government programs (Small Business Development Center, Procurement Technical Assistance Center) are established to assist businesses in preparing for compliance with federal contracting requirements.

GEDA's principal role has been to ensure that local businesses are guaranteed contracting opportunities (although GEDA also provides direct assistance to small local businesses in the form of loans). GEDA, on behalf of the government of Guam, will continue to advocate for as much opportunities as possible for our local small businesses as Guam moves forward with the military buildup in the years to come.

Marianas Business Journal
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