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Federal Stimulus Program Pours $54 Million Into Wine Train Project

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By Lance Williams, California Watch

NAPA - The corporate shareholders live in tribal villages in the outback of western Alaska.

The CEO is in South Carolina, where his prior multimillion-dollar venture - a dot-com for sail boaters - collapsed in bankruptcy.

But the main action today is in Napa, where, without competitive bidding, this unusual construction company won a $54 million federal contract to build a new railroad bridge and other structures for the famed Napa Valley Wine Train tourist attraction.

This is the world of Anchorage-based Suulutaaq Inc. Because the company was founded by Alaska natives, it enjoys special access to federal contracts.

That's how it obtained one of the biggest federal stimulus contracts in California - a key segment of a U.S. Army Corps of Engineers' flood-control project on the Napa River.

Army and Napa city officials say they're pleased with Suulutaaq's work on what they describe as an environmentally friendly project to curtail devastating winter flooding. It's an ideal stimulus project, says Napa Mayor Jill Techel: "shovel-ready, green, and it provides jobs."

But in December, U.S. Sens. John McCain, R-Ariz., and Tom Coburn, R-Okla., issued a report listing the Wine Train among 100 stimulus projects that they derided as "silly and shortsighted" and a waste of money.

The lawmakers also suggested the project wasn't doing much for the economy. According to a report submitted by Suulutaaq late last year, the $54 million project had created 12 new jobs. Officials involved with the project say that more recently there have been days when more than 40 workers have been on the scene, and they hope the project could ultimately create up to 200 jobs when work ramps up.

A Walnut Creek construction executive whose firm built a prior phase of the flood-control project said the government likely overspent by millions when it negotiated a contract with Suulutaaq rather than seeking competitive bids.

Meanwhile, investors aggrieved over the bankruptcy of the South Carolina dot-com called Sailnet said they were surprised to learn of former CEO Samuel Boyle's new job as CEO of Suulutaaq. Boyle did not mention having construction experience or ties to Alaska tribes, they told California Watch. Some said Boyle's involvement in Suulutaaq boded ill for the Alaska firm.

"My comment to anybody connected to this thing - if Sam Boyle is involved, watch out," said Arizona venture capitalist Kent Mueller, who said he lost more than $1 million in Sailnet. Based on that experience, "I would not invest a nickel with this guy," Mueller said.

Suulutaaq officials declined to be interviewed. In response to written questions, the company issued a statement saying that taxpayers were getting a "fair and reasonable" price on the project. The statement said that although Boyle lacked "specific construction experience," he had "invaluable business experience" to make the Napa project a success.

But the company declined to answer most questions about the project, saying the information was confidential. It rebuffed a query about whether Suulutaaq employed lobbyists by asserting that the question "has potential undertones of a race-based presumption."

Boyle also declined to be interviewed. In a statement, he wrote that the dot-com's bankruptcy was "a tragedy" for which he was not responsible because he had left the company by the time it occurred.

Emerging players

Suulutaaq is one of dozens of Alaska Native corporations that have emerged as players in federal contracting via measures crafted in the 1980s and 1990s by former U.S. Sen. Ted Stevens, R-Alaska, a powerful lawmaker whose career ended with a contracting scandal.

For decades, the U.S. Small Business Administration has run a preferential contracting program to aid disadvantaged businesses. Qualifying firms can get federal contracts worth up to $5.5 million by negotiation, rather than competitive bidding.

The Stevens measures gave corporations that were set up by Alaska Natives special access to the program - with no cap on the size of contracts they can obtain. The share of federal contracts going toward Alaska Native corporations has grown rapidly. It was $508 million in 2000 and $5.2 billion in 2008, records show.

Advocates say the program has provided crucial economic development for impoverished Alaskan tribes. It's a way of redressing centuries of grievous wrongs against them, they say.

But critics have complained that the no-bid contracts provide relatively few jobs and little investment income to the tribes while costing taxpayers a fortune.

"Alaska Native corporations don't have to prove that they're socially or economically disadvantaged," U.S. Sen. Claire McCaskill, D-Mo., said at a 2009 hearing. "They don't have to be small businesses. And they can receive no-bid contracts worth billions of dollars."

The companies employ few Alaska natives and "rely heavily on non-native managers," McCaskill claimed. Thus the firms create relatively few jobs for the people they are supposed to benefit, she argued.

McCaskill also contended that some of the companies "may also be passing through work to their subcontractors." In those cases, the companies were collecting a profit simply because they had special access to federal contracts, not because they were performing actual work, she said.

McCaskill proposed putting a cap on the no-bid contracts, but the measure stalled in the face of intense lobbying by tribal corporations.

West of Anchorage

Suulutaaq is a subsidiary of the Kuskokwim Corp., also called TKC, which was formed in 1977 by Yupik Eskimos and Athabaskan Indians on the remote Kuskokwim River, 350 miles west of Anchorage.

Suulutaaq is a Yupik word for gold, and the company was initially formed to develop a nearby goldfield.

Hoping to ease "poverty in the isolated and rural villages of its region," the company said it began competing for federal contracts. Suulutaaq wouldn't describe how that came about. Experts say tribal corporations often get into federal contracting by hiring consultants in the lower 48 states who have connections with contracting officers.

Many federal agencies find it simpler and faster to negotiate a contract with a single vendor rather than put a contract out to bid. But sole-source contracts are generally more costly to taxpayers, experts say.

In April 2006, Suulutaaq negotiated a federal contract: $68,000 to replace a sewage pump at McClellan Air Force Base near Sacramento.

Four months later, it obtained a $14.1 million, no-bid contract to rebuild meat lockers in Honolulu for the U.S. Defense Commissary Agency, which runs supermarkets on military bases. Since then, the tribal company has built a headquarters building for the Department of Homeland Security in Arizona and repaired meat lockers on military bases in California, Nevada and Japan.

Before it won the job in 2008, Suulutaaq had negotiated about $45 million in federal contracts, records show. Most of the projects were outside Alaska.

Two other TKC subsidiaries have also sought federal contracts. In 2007 and 2008, API Inc. won a series of no-bid contracts for army uniforms that totaled $94.7 million. The uniforms were sewn at plants in Puerto Rico, records show.

In 2007, a subsidiary called TKC Aerospace, with an office on Daniel Island, S.C., began obtaining no-bid contracts from the Air Force. Its CEO was Boyle, the former CEO of Sailnet.

In his statement to California Watch, Boyle described himself as a former consultant for government agencies, and said he lived in Alaska for four years in the early 1980s. In a handout for potential dot-com investors, Boyle said he was a marketing expert with a background in Air Force logistics. He told investors he began selling sailing gear on the Internet when he lived in Detroit in the 1990s, and moved the business to South Carolina to be near the sea.

Under Boyle, Sailnet burned through more than $13 million in venture capital, company documents show, but it never made a profit. Boyle was terminated in 2004, according to a former director and published reports.

The company went bankrupt the following year. Investor Larry French said he thought Boyle had gone on to run another sailing dot-com.

"He was a good talker, but a lousy businessman," French said. "This is the first time I have heard about him and Alaska."

In his statement, Boyle said hundreds of start-ups failed when the dot-com bubble burst, with many "burning through millions more in venture capital than Sailnet ultimately did." After leaving Sailnet, Boyle wrote that he was hired as a consultant at TKC Aerospace and in 2005 became CEO.

In all, TKC Aerospace has obtained $117 million in contracts. In 2009, the U.S. Department of State paid the company $9 million to retrofit light-wing aircraft for use in the war in Afghanistan.

By then, Boyle also was working as the CEO of Suulutaaq.

A history of flooding

For decades, the Napa River has been prone to disastrous flooding. In the 1980s, the corps of engineers proposed forcing the river into a concrete channel to control floods, but the idea met local resistance.

Then, in 1998, environmentalists proposed what they called a "living river" project to manage floods. Floodwater would be absorbed and diverted through a system of wetlands and a bypass channel. Napa County voters agreed to tax themselves $6 million per year for 20 years to help pay for the project.

The rest is being paid with federal funds. The total price has ballooned from $250 million to more than $400 million.

The price tag might have been significantly lower but for the, a private rail line established by the late Vincent DeDomenico, the wealthy creator of Rice-A-Roni pasta. Sixteen times each week, according to the Wine Train's web site, the train transports tourists from Napa to St. Helena aboard restored dining cars. A champagne dinner on the Vista Dome car costs $129 per person. About 125,000 people ride the each year.

The train's rail bridge in downtown Napa was too narrow for the wider river channel proposed, so it's being replaced. A new floodwall will also be built to protect the train's Napa station. Tracks are being relocated as well.

The added expense of accommodating the Wine Train was politically necessary, said Chris Malan, manager of the Living Rivers Council environmental group and a proponent of the tax measure. Without the support of the politically influential DeDomenico, the tax measure would never have passed, she said.

"He came out right from the beginning, saying, 'If you do not take care of me, I will campaign against you,'" she recalled.

The corps of engineers solicited bids for the early phases of the project. In 2005, a Walnut Creek engineering firm, R&L Brosamer Inc., won a $25 million contract to build floodwalls and a promenade in Napa. Brosamer's work was honored by the American Public Works Association as Northern California "project of the year."

President Robert G. Brosamer planned to bid on the job as well. But in 2008, he said he learned that no bids were being sought. The project "was a done deal with an ANC," as he put it, using contractors' jargon for an Alaska Native corporation.

"It was very frustrating," he said. "Particularly because the job we did was a tough thing, and the community loved us - and then we didn't even get a shot."

In September 2008 the corps of engineers awarded a $6.2 million contract to Suulutaaq to begin work on the Wine Train segment. The flood control project was already years behind schedule, said Bert Brown, the corps' project manager.

"One of the mechanisms to expedite (a project) is to use qualified firms and go to them and negotiate a price," he said.

Brown, who said he was not yet involved in the project, said he doesn't know who contacted Suulutaaq on behalf of the corps of engineers.

A corps official said that someone on the project design team had recommended the company. But this official, who spoke only on condition of anonymity, said that no one could recall who made the recommendation. California Watch sought documents on this point via the Freedom of Information Act, but the corps said the information was exempt from disclosure.

A few months after Suulutaaq got its contract, the federal stimulus program was announced. The corps recommended the project, hoping to further speed its completion. With the support of U.S. Rep. Mike Thompson, D-Napa, $54 million in stimulus funds also went to Suulutaaq. That puts the company in the top 10 of largest stimulus contract recipients in California, records show.

Brosamer, the Walnut Creek contractor, said the public was paying a premium for the project, saying, "It would have been a hell of a lot cheaper if they had put it out to bid."

But the quality of the construction is first rate, Brosamer said, because Suulutaaq subcontracted much of the job to the giant Peter W. Kiewit & Co. engineering firm, which is also a contractor on the Bay Bridge.

"The reality is, Suulutaaq isn't doing much," Brosamer said, "They've got some staff on the job, and they're running some subs, but Kiewit is doing the work."

Federal records show that Suulutaaq is paying Kiewit $28.1 million - 53 percent of the total stimulus contract. Suulutaaq is keeping about $20.4 million, or 38 percent of the total. The rest, about $4.7 million, goes to other subcontractors, all from the lower 48 states.

In its statement, Suulutaaq said the company was complying with federal law regarding hiring subcontractors.

"Obviously, there cannot be any sort of guaranteed profit" built into the contract, the statement said.

The company said Boyle was a "transitional" CEO, and would soon be replaced by an Alaska native CEO.

This report originally appeared in California Watch. Reporter Agustin Armendariz contributed to it.