Get in the Fast Lane
31 Mar, 2004By: Charles Sid Saunders
Uncle Sam is rapidly becoming one of the most innovative and influential forces in our economy – driving the growth of businesses and manufacturers. The Department of Defense (DoD), the Department of Veterans Affairs (VA), the Department of Energy (DoE), the U.S. Department of Agriculture (USDA) and other federal agencies offer public-private partnerships and a host of creative programs and initiatives designed to improve your company’s bottom line and save the government operating costs. Whether you need research and development or larger facilities for manufacturing, there is a government program that will meet your manufacturing and business needs.
“Companies and manufacturers can grow faster utilizing the assets of the U.S. government,” said Len Funk, Principal of Pendulum Management Company, based in Charlestown, Ind. “Companies can leverage and accelerate growth and expansion by tapping into a wealth of tools and incentives like government guaranteed loans, access to federal research laboratories and personnel, and the ability to use specialized manufacturing equipment and expertise. The government has already made the substantial investment, companies and manufacturers can reap the benefits by participating in a wide range of programs.”
Enhanced Use Leases – Thinking Outside the Box
Creative solutions were needed to capitalize on the tremendous assets that the government has in its portfolio – everything from real estate to high level scientists. A mix of progressive legislation and innovative thinking lead many agencies to adopt the successful enhanced use lease (EUL) model first developed by Veterans Affairs in 1991 under the authority granted by legislation. As the initial case study, the James H. Quillen Medical Center in Mountain Home, Tenn. was in dire need of upgraded energy systems and the need to reduce energy use and cost. Through an EUL, the contractor - Energy Systems Group based in Evansville, Ind. – completely updated the energy plant with private money and added $3 million in energy efficiency improvements to yield a 20% to 25% reduction in annual energy use and costs at the VA facility Overall; it has turned out to be a win-win situation for everyone involved.
Success breeds success and in 2000, Congress passed revisions to DoD leasing policy which greatly expanded the military’s ability to take underutilized real estate assets and make public-private partnerships to use private capital to put land and buildings to productive use and generate cash or in-kind consideration. The first EUL granted was used by the Army in 2001 to renovate and redevelop the original Brooke Army Medical Center at Fort Sam Houston in San Antonio, Texas. The seven story, Spanish Colonial Revival-style building totals 450,000 square feet and was originally constructed in 1937. It had sat vacant since 1996. Private firms Weston Solutions and Orion Partners worked with the Army to develop a business and lease plan.
Leveraging Research and Development Costs and Manufacturing Expertise
Global business has never been more competitive and many companies are constantly looking for ways to speed their products to market at a reduced cost. However, research and development costs continue to be a barrier to many companies. The government has recognized this need since 1974 by creating the Federal Laboratory Consortium for Technology Transfer (FLC). The FLC is a nationwide network of federal laboratories that provides the forum to develop strategies and opportunities for linking the laboratory mission technologies and expertise with the marketplace. Today, more than 700 major federal laboratories and centers and their parent departments and agencies are FLC members.
Over the past 10 years the FLC has become more focused on the concerns and needs of American industry – making it easier than ever to enter into partnerships with federal research facilities. An example of this is the option to obtain an exclusive license to market a federally developed technology, which is an easy way for smaller companies to gain an edge when they enter the marketplace. Another example is the use of cooperative research and development agreements (CRADA) in which the government can collaborate with industry by providing access to facilities and services.
The military has also recognized the need to leverage assets and partner with other public partners such as cities and states. The use of public –public –private partnerships is becoming a popular mechanism.
The Brooks City-Base located in San Antonio was a pioneering project between the Air Force and the city of San Antonio to transfer base property to the city and private developers in exchange for services and developmental revenue. The Air Force essentially leases back the property it needs to conduct its missions and operations. Brooks AFB was uniquely structured to provide immediate facilities and expertise in science, medicine, education and research. Much of the base was turned into the Brooks Technology and Business Park. The Air Force reduced their operating costs by 35% or $8 million to $10 million annually.
In May of 2001, the State of Missouri and the University of Missouri System agreed to a partnership with the U.S. Army to start the University of Missouri Technology Park at the Army’s Fort Leonard Wood facility. This park officially opened in May 2002 and has nurtured the development of technology-based companies that will do business with the schools and laboratories at the site.
“Presently, we have 22 tenants in the park and have 80% occupancy in our first building,” said Ron Selfors, project director for Missouri Enterprise – a business and economic development not-for-profit corporation headquartered in Rolla, Mo. “We are pleased to say that the park is operating in the black. Construction should be complete on our second building this fall and we are attracting a good list of tenants. Partnerships like the University of Missouri Technology Park serve as a good model for installations that are not located in large metro or urban areas. Bringing partners together such as the university system and the state help ensure a clear direction and shared vision which leads to success.”
Another unique partnership program has been launched to use the Army’s manufacturing arsenals for commercial applications. The Army Arsenal Support Program Initiative (ASPI) is modeled after the highly successful ARMS (Armament Retooling and Manufacturing) program. The ASPI Program promotes the commercial use of idle arsenal capacity while maintaining readiness, which promotes reduced Army ownership and product costs through rental revenues and shared overhead. Currently three arsenals are participating in the program – Pine Bluff Arsenal in Ark.,Rock Island Arsenal in Ill. and Watervliet Arsenal in N.Y.
“We can turn around a project quicker than most industrial parks and we can tailor our sites to meet the specific needs of companies and manufacturers. So far our biggest hurdle has been the fact that businesses are simply not aware of us. When you look at what the ASPI program can offer – everything from financial incentives to use of arsenal facilities and utilities, it is an incredible deal.” said Gary Eichorn, ASPI program coordinator. Watervliet Arsenal is a shining example of just how beneficial these partnerships can be.
“There is a great synergy going on at Watervliet,” said Eichorn. “The Nation has invested heavily in Watervliet to become a major center for nanotechnology research and development. You’ve got some of the best minds in the world working on this research. It is just an awesome collaboration between the government, manufacturers and universities. We were able to assist this growth by leveraging every dollar to its utmost potential.”
Pay As You “Grow”
The most successful public-private partnership to date is the Army’s ARMS program. Manufacturers and companies who participate in the ARMS program have access to the full spectrum of services which include facilities, equipment, operating contractors, expanded manufacturing capabilities, etc. ARMS has attracted a diverse range of tenants from plastics recyclers to rocket engine manufacturers who benefit tremendously from innovative asset management techniques.
Essentially, the Army conducts business with one facility contractor per site, saving time and complications of Army/tenant or lessee multiple agreements. The facility contractor can then negotiate commercial terms and conditions between his organization and multiple tenants. Facility contractors are encouraged and motivated to bring on tenants because they share in the value created in the form of performance fees on their contracts. The ARMS program also has initiated long term contracting terms and management of environmental risks to encourage capital investments that can be recouped.
To date, the ARMS program has used $250 million in government seed money to finance the development of master plans, user directed improvements, marketing and program implementation at the 10 participating Army ammunition plants. Private investments at Army facilities are now in excess of $250 million from a total of 140 business tenants. In just six years, ARMS was able to recoup all expenditures and become the model for all defense conversion programs.
The impact of the ARMS program has been substantial in fostering business growth and creating stable, job opportunities for local economies. In a report from IBM Consulting, the ARMS program has created $3.9 billion in economic output and created or sustained 3,469 jobs from 1993-2002 and saved the Army $290 million.
“With the ARMS program and Facility Use subcontracts, your tax dollar and mine are hard at work making sure facilities built with government dollars can still provide a return on our investment through commercial leasing, reduce the carrying cost of these facilities and acknowledge a better state of readiness after being upgraded for commercial use should a major national defense issue make it necessary,” said Jack Figg, Director of Business Development and Community Affairs at the Lake City Business Center located in Independence, Mo. “In the meantime we are growing small businesses that make a contribution to our local economy and our way of life. It is a win/win for both the government as owner and the tenant who might not otherwise be able to afford comparable space in the private sector.”
This win/win situation has been created through innovative incentives and strategic locations that have fueled major business development and growth.
“We were the first company to get a facility use contract for 25 years,” said Tony Hewitt, Commercial Development Director at the Holston Army Ammunition Plant located in Kingsport, Tenn. “Long term contracts enable us to do substantial deals and provide visible long term security to investors. The ARMS loan guarantee program is also a great incentive to attracting businesses because they can qualify to receive financing of up to $20 million at a guarantee of up to 85 percent. We have the space availability, lower rents and flexibility in structuring the leases. Overall, we’ve had an excellent pattern of success and here at Holston, we are breaking the mold by doing actual land transactions. We currently have five acres that we have developed along the road frontage. Right now, we have a bank, fast food restaurant and other retail stores signed to leases on five prime acres with highway access.”
The ARMS program has attracted a wide array of both small businesses and large corporations to the various facilities across the nation.
“The people involved with the ARMS program have bent over backwards to help us – they made over $100,000 in facility improvements including a new dock to accommodate our needs,” said John Dionne, President of Patriot Inc., located in the Lake City Business Center. “We are pool point distribution freight company that is growing, thanks in part to the ARMS program. Price and security are our two biggest issues. Our rent is significantly cheaper than if we tried to find a facility elsewhere and you simply can’t get any better security.”
“We design, build and test rocket engines so it is obviously important to us to be on a site that is affiliated with NASA,” said Dave Geiger, Boeing Site Director at Stennis Space Center, Miss. “When we were looking for a site to locate our rocket assembly plant, the MSAAP was a natural choice. Utilizing the ARMS program, we were able to get our facility up and functional in a short period of time. If we had to start from a ‘green field’, it would have taken a lot longer. We were able to work closely with the facility contractor to get what we needed, as quickly as we needed it. Very professional. Overall the ARMS program and the people associated with it certainly have been creative and innovative to ensure our success here.”
“This program is just so unique – the whole concept of generating revenue from assets is novel for the military,” said Wayne Gouguet, Director of Marketing & Business Development at the MSAAP Industrial Plant located in the Stennis Space Center, Miss. “I have been involved with the ARMS program for over 11 years and I have witnessed the return on the investment dollars. It’s exciting to think about the years to come and the potential that exists.”
“Without any doubt, the success of this program at LAAAP can be measured in jobs,” said Drew White, Commercial Reutilization Manager at the Louisiana Army Ammunition Plant (LAAAP) located in Minden, La. “We have leased over 1 million square feet to 19 public and private tenants. Currently we have over 300 full time jobs with a facility wide payroll of over $11 million. We project that by the end of this year, we will see those numbers increase to over 460 jobs with a $16 million plus payroll. This is an incredible addition to the local economy.”
Tapping into Your “Uncle’s” Resources
So how can you get a slice of the pie from Uncle Sam? For most programs, it begins with a simple phone call to the operating agency. Many programs have cooperative marketing agreements to help guide potential partners to one centralized informational source. Each program is designed to minimize the red tape and maximize your business potential – moving your company into the fast lane.