Navy defends contracting levels

By Frank Oliveri
Advertiser Washington Bureau

WASHINGTON — The Navy exceeded its federal goals last year for awards to small and disadvantaged businesses in Hawai'i and is on track to do so again this year. But some business owners say the Navy must do better.

The service also has shown growth in awards to Hawai'i-based businesses owned by women, jumping from $9.6 million in fiscal year 2002 to $37 million with one month remaining in this fiscal year.

"This is a great news story for the state of Hawai'i," said Steven Schooner, a government-contracting expert at George Washington University. "You have to conclude that the Navy is bending over backwards to accommodate Hawai'i interests."

The Navy released the numbers after one of Hawai'i's lawmakers raised questions about whether Hawai'i businesses are locked out of awards arbitrarily.

"There is a long-standing perception among Hawai'i's businesses that they have operated at a disadvantage in competing for and being awarded" Hawai'i military contracts, Rep. Ed Case, D-Hawai'i, wrote in a May 12 letter to Adm. Walter Doran, commander of the Pacific Fleet. Case asked Doran to clarify whether those perceptions were true.

However, Rear Adm. Martin Brown, the Navy's competition advocate general, said Hawai'i's share of Navy contracts in the state has been "substantial." Brown, one of the Navy's top acquisition officials, responded to Case's letter for Doran.

Brown said Hawai'i is beating overall Navy performance for small-business and disadvantaged business contracts:

• The Navy's goal last year was that 19.9 percent of all contracts should go to small businesses. Hawai'i small businesses received 43 percent of Navy contracts in the state.

• The Navy's goal last year was that 5.7 percent of all contracts should go to disadvantaged businesses. Hawai'i disadvantaged businesses received about 25 percent.

Small businesses are privately owned and not considered dominant in their field. Also, there are varying standards for numbers of employees and business value, depending on the industry.

Disadvantaged businesses are owned by socially and economically disadvantaged people, some of whom are minorities. The disadvantaged person must have better than 51 percent ownership of the business and a net worth of less than $750,000.

"Hawai'i is leading the way for small business in the country," Brown said.

Nonetheless, Brown said the Navy was pursuing initiatives to increase opportunities for Hawai'i businesses within the limits of the law.

He cited, for example, the recent contract valued at up to $30 million awarded to Dawson Group Inc., a Native Hawaiian business.

Native Hawaiians get special treatment among small-business contractors in that they can receive noncompetitive contracts that exceed the $3 million limit placed on sole-source awards to other disadvantaged businesses. Sole-source awards are those contracts given to an individual company without competition.

Brown also cited a Navy-sponsored Hawai'i Small Business Outlook Forum that was held July 13. The event offered local businesses a better understanding of the military contracting process in Hawai'i.

Overall, the Navy has awarded $416 million for work performed in Hawai'i this year to date, with about $230 million having gone to Hawai'i businesses. Hawai'i small businesses got about $162 million in work this year.

Last year, the Navy awarded about $704 million for work in Hawai'i with about $470 million going to Hawai'i businesses. Hawai'i small businesses absorbed about $175 million.

Andrew Poepoe, director of the Small Business Administration in Honolulu, said small businesses do well in Hawai'i for three reasons: Most of Hawai'i's companies are small; the Islands' relative isolation from the Mainland gives state businesses an advantage; and even small businesses not owned by Native Hawaiians can receive non-competitive contracts of up to $3 million.

Juanito Lameg, owner of Paradise Landscape Maintenance, a disadvantaged business in Honolulu, said the Navy did a good job mentoring him and working with him on his contract. His company won a $2.8 million landscaping contract last year.

"I'd say they are very fair," he said. "They tried to work with me."

But Jo Pickard, president of Environet Inc., an environmental engineering service, wrote a letter to Case raising questions about Navy practices in Hawai'i. His business recently lost a competitive bid on a Navy contract.

Despite Environet's already holding a Navy contract, Pickard complained that the Navy has told him and other small-business owners that they lack the experience to handle larger military contracts.

"But how do you get the experience if they won't give it to you?" Pickard said.

He also said those who complain often are frozen out of the process.

"The Navy gives contracts to their friends," he said.

But Brown said Pickard's claims were untrue.

"This is really a surprising perception," Brown said. "There may be a vocal minority of firms that are unhappy because they didn't get a contract."

He said, for example, that a $40 million contract today is structured differently than in past years so that the contract can include a small-business award.

But Pickard said that most of the awards are in areas such as construction, so-called dirt-movers, not in highly technical areas.

The Defense Department, in fact, has so extensively used construction as a source of small-business awards that it has reached a 40 percent small-business cap on construction this year.

Pickard said Hawai'i business owners may oppose more military coming to the state "if we know we are not going to benefit from it."