Tribal works | Defense contracts position Penobscots for long-awaited prosperity
Photo/Robert M. Cook
Penobscot Nation Chief Kirk Francis says an SBA program that has connected tribes with defense work is helping rebuild the Penobscot's economic base
Inside the vacant Olamon Industries building on Indian Island, a solitary case of cassette tapes sits atop a power station covered in dust — a testament to a failed tribal business venture more than 20 years ago.
But soon, as many as 200 members of the Penobscot Nation will be working in the 36,000-square-foot warehouse located in the heart of the community, fulfilling more than $100 million in contracts the tribe is close to securing with U.S. Department of Defense contractors. The work ranges from recycling wooden crates for the Army to building harnesses for electronic guidance systems for Patriot missiles.
“The tribe is in a much different place today with its economic future,” says Chief Kirk Francis.
The work at Olamon springs from the tribe’s decision to participate in an 8(a) program offered by the U.S. Small Business Administration when Francis first took office in 2006. Overall, Francis says the tribe will take its cut of more than $150 million in DOD confirmed contracts in Maine and Texas, with more in the pipeline.
The SBA program was created to help small companies owned by socially and economically disadvantaged groups develop business opportunities, including procuring federal contracts. Native Americans are among the groups the SBA has identified as eligible. At Indian Island, the program is being implemented in two ways: Penobscots are partnering with DOD contractors — who are required by federal law to give a percentage of their work to 8(a) businesses — to administer portions of the contracts by finding suitable subcontractors; and by pursuing some of the defense contract work themselves.
Already seven Penobscots are working full time administering DOD contracts while dozens of others are gearing up for manufacturing work expected to begin this fall. Combined, the 8(a)-related contracts should provide a steady flow of jobs and revenue into Indian Island, a community of 800 people that has suffered a series of failed economic development projects. The benefits are expected to spread to the rest of the 2,400-member nation, who live in Maine, the Northeast and Canada, and other Maine tribes are pursuing DOD work as well. But there is opposition mounting to the program in Washington.
According to the Native American Contractors Association in Washington, D.C., more than 180 tribal-owned 8(a) companies across the nation have obtained billions of dollars in federal contracts. Besides the Penobscots, the Maliseets in Aroostook County and the Passamaquoddy Indian tribe in Washington County have established smaller-scale businesses within the SBA program.
But only a handful of tribes have experienced major success with it, according to Sarah Lufkin, the association’s executive director. As more tribes take advantage of this program, a fierce battle is raging on Capitol Hill over limiting how much DOD work is allocated to the nation’s tribes.
A bridge to prosperity
In some ways, the narrow bridge that links Indian Island to Old Town is a metaphor for what the tribe hopes to accomplish through the defense contracts. Francis believes the bridge that will allow his people to cross over to a future of sustainable prosperity is now within reach.
“We’re trying to rebuild our nation,” he proclaims in his office that is adorned with a ceremonial Indian head dress and several Penobscot Nation artifacts. By 2014, Francis expects the tribe will approach half a billion dollars in federal contracts. Close to $146 million has been confirmed to date, with another $100 million in the pipeline.
The success of the 8(a) program stands in stark contrast to many of the tribe’s past business failures, which include manufacturing audio cassettes in the mid-1980s and the unsuccessful attempt to site a $650 million casino in Sanford in 2003. Another venture, a mail-order prescription drug program with MaineCare earlier this decade, turned out to be a bust. All three ended up providing a bridge to nowhere.
Meanwhile, revenue the tribe generates from its high-stakes bingo hall, which hosts up to 3,000 people for weekend games every six weeks, has decreased since Hollywood Slots Hotel and Raceway opened in Bangor in 2008.
Francis believes the fatal flaw with all of those previous ventures is that the tribe was never in a position to make key decisions and the entities who were did not act in the best interests of the tribe. The results have left Indian Island with a 20% unemployment rate, severe poverty and an average life expectancy of 58, according to the Maine Office of Minority Health at the Maine Centers for Disease Control and Prevention.
“When things go bad, it’s because other people are making the decisions for you,” Francis says.
In 2005, the tribal leaders took their first step to turn things around when they created a 17(c) federal corporation, the Penobscot Indian Nation Enterprises, and made Federal Program Integrators one of its nine subsidiaries. That allowed the tribe to pursue other federal procurement designations, positioning it for eligibility for DOD contract work.
Tim Love, president and CEO of FPI, has a full-time staff of seven tribal members to administer the six DOD contracts awarded since January. They include finding subcontractors to work on a $74 million contract to design a technical system for Army helicopter transmission and gear boxes for their weapons systems at the Letterkenny Army Depot in Corpus Christi, and a two-year, $24 million contract to renovate dormitories at Lackland Air Force Base in San Antonio.
Love says the tribe has spoken with owners of the Old Town Fuel and Fiber paper mill in nearby Old Town to see if they can lease a vacant 260,000-square-foot warehouse with a six-car rail line and 20 truck bays to position it for future contracts.
The beauty of the 8(a) program, says Love, is that it requires big DOD contractors to partner with disadvantaged small businesses for a portion of their projects. In one application, a DOD contractor can “sole source” its subcontracting work to an 8(a) company with the appropriate expertise and bypass the cumbersome and lengthy bidding process, Love explains.
“With the contract for the war fighters, you have to do it right and you have to partner with the right subcontractor,” says Love, a former Penobscot chief and tribal representative to the Maine Legislature. “The bottom line is if you don’t perform, you’re out.”
Love says 12 Penobscots are training in paint blasting in Pennsylvania through FPI’s apprentice program and up to 40 more will be trained to administer DOD contracts as FPI increases staff to meet demand.
Although the contract numbers are big, the tribe receives only a small portion of the total award. With the $74 million Army depot contract, Love says, the tribe and Virginia-based Tiburon Associates split 6.5%, or $4.81 million, of the contract. He says the tribe’s 51% portion of that amounts to $2.45 million after Tiburon receives its 49% cut of more than $2.35 million.
Still, that’s sizable revenue. In an e-mail, the Native American Contractors Association’s Lufkin writes the Chickasaw Nation in Oklahoma used profits to build a $148 million hospital and the Winnebago Tribe of Nebraska is building housing units, a retail district and an arts center.
“Historically, the federal government has dealt with poverty in Indian country by providing grants, which frankly are a short-term, cyclical answer to a long-term, chronic socio-economic situation,” writes Lufkin.
Waiting to exhale
As much as Francis and other tribal leaders want to breathe a collective sigh of relief after tapping into the 8(a) program, the chief says they can’t.
Francis, the National American Indian Congress and the contractors association are closely watching lawmakers like U.S. Sen. Claire McCaskell, D-Mo., who wants to limit the amount of DOD contracts Indian tribes can pursue.
According to Governmentexecutive.com, a daily online business publication for federal managers and executives in Washington, D.C., the 2010 Defense Authorization Act includes a rule change that requires Indian tribes with multi-year contracts worth more than $20 million per year to seek additional approvals before they can secure those deals. Francis says the national Indian groups want to see that rule apply only to the first year of a multi-million-dollar contract instead of every year.
McCaskell has alleged certain Alaskan tribes took advantage of contracting loopholes to bypass a competitive bidding process so they could receive huge defense contracts. According to the publication, in fiscal year 2008, companies owned by Alaskan tribes earned $5 billion in federal contracts compared to $506 million in fiscal year 2000.
Fortunately for the Penobscots, Francis says U.S. Sen. Susan Collins continues to be a staunch ally for the tribe. He says Collins refused to participate in the hearings scheduled to examine the rule change last summer and the hearings never took place.
“She’s been outstanding in helping us get to where we are,” he says.
Dante Desiderio, director of economic policy for the National Congress of American Indians in Washington, says his group is optimistic the program will withstand challenges in Congress. He says the best way to combat its critics is to constantly educate lawmakers about the program’s benefits. When they hear how the Salish Kootenai tribe in Montana used the 8(a) program and cut its 50% unemployment rate by nearly half, they see “this is really one of those programs that’s working,” says Desiderio.
Francis is hoping for similar results on Indian Island. Crews have begun retrofitting the Olamon Industries building to recycle Army crates, clean and store military containers from the Middle East and assemble Patriot missile harnesses — all work expected to be awarded this fall. The lesson the tribe has learned from the solitary cassette case inside the warehouse is forever etched in his mind.
“We’ve learned we can’t depend on other people and we need to take the responsibility for ourselves,” he says.
Bob Cook, Mainebiz staff reporter, can be reached at bcook@mainebiz.biz.
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