Web posted Thursday, April 28, 2011

Chugach charted path to 8(a) successes

By Tim Bradner
Alaska Journal of Commerce


  Chugach Alaska Corp. Chair Sheri Buretta leads the Alaska Native regional corporation that forged the path for her partner ANCs to enter into the profitable business of federal government contracting. Photo/Michael Dinneen/For the Journal    

If challenges could also be seen as opportunities, as the old saying goes, Chugach Alaska Corp. would have had difficulties seeing anything rosy about its future amid the problems it confronted after Congress approved the Alaska Native claims settlement in 1971.

More about those problems later.

The important thing now is that Chugach has developed a thriving enterprise with a bright future.

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In 2009 Chugach crossed the billion-dollar threshold in terms of gross revenues. Chugach's after-tax net earnings were $33.5 million that year.

Chugach Alaska Corp. is the Alaska Native regional corporation for the Prince William Sound and lower Cook Inlet areas.

While all the Alaska Native corporations, Chugach among them, made mistakes in their early, formative years, what's happening now is that a generation of educated Alaska Natives is taking the reins at the corporations, said Sheri Buretta, Chugach's board chair.

Buretta points to herself, as well as Chugach CEO Ed Herndon as examples.

There are still challenges, with the national spotlight now on the Small Business Administration's 8(a) program, aimed at helping small, disadvantaged and minority businesses.

Buretta sees the positive in this, however.

"We have to look at this as an opportunity to strengthen our corporations," by demonstrating good performance, increasing benefits to our shareholders and achieving the intent of the 8(a) program, which is to evolve into successful companies, she said.

Chugach is in several lines of business, including commercial real estate in Anchorage and a metal component manufacturing company in Virginia, but its major focus is providing facility operation service and support, as well as construction and educational, mainly Job Corps operations.

The corporation was one of the early leaders among Alaska Native corporations in taking advantage of 8(a) contracting opportunities, and most of Chugach's support companies have graduated from the government minority preference program and are now competing for business on their own.

Chugach owns 100 percent of all of its operating subsidiaries, of which nine have graduated from the 8(a) program, Buretta said. Only one is still in the program.

Together these companies manage more than 60 support contracts worldwide.

"A lot of our work is in base operations and maintenance. We do everything from cutting the lawn to engineering and architectural design, and we've developed a broad range of expertise over the years," Buretta said.

There is a strong track record of performance.

"This really shows up in our ability to get more work from customers. The regulatory requirements are very rigorous," she said.

Automatic extensions can't be assumed. Extensions of contracts must be earned, and Chugach consistently earns them.

Although Chugach is less dependent on the 8(a) preferences these days, Buretta is a fierce defender of the program for Native corporations that have recently formed 8(a) subsidiaries.

Although margins are slim – 8(a) contract amounts can be large but what counts is the net profit, which isn't so much – the contracts do provide some cash flow for Native corporations and, more important, an opportunity to get business experience, particularly in working with joint venture partners.

Buretta also admits to problems.

"There's no doubt people have (in the past) taken advantage of Alaska Native corporations, their tendency to trust people and their lack of experience in running businesses," she said.

The corporations now have more experience and professional management, and many educated Native managers, but there's more to be done. Buretta said it's important for the corporations to recruit board members with business experience.

Federal contracting was crucial in helping Chugach recover from devastating early events, particularly the 1989 Prince William Sound oil spill, which ruined the corporation's fish processing business and pushed it into bankruptcy.

However, developing its 8(a) business wasn't easy for Chugach and Buretta hopes that, having been early in the field, Chugach made it easier for those Native corporations following. It takes several contracts to get the economies of scale to make it work.

"It took us six years, from 1992 to 1998, before we started to see meaningful net profits from our investment into this business," she said. "You have to get a critical mass because often the margins are so low. The contracts can have huge revenues but it's what you get to keep that counts."

The net after-tax profit on government contracts are typically 3 percent to 5 percent, Buretta said.

Chugach also had to invest substantially in the infrastructure to administer government contracts and to get established. The corporation used its 7(i) resource revenue from other corporations as well as income earned from a timber sale in Icy Bay. A $1 million line of credit also helped.

It was a real gamble for Chugach at the time because the corporation was still in bankruptcy.

In 2000, Chugach finally paid off the last of its bankruptcy-related obligations and started paying dividends to shareholders. Dividends have steadily increased in recent years, from $2.13 million paid in 2005 to $3.56 million in 2009.

Chugach isn't totally dependent on government contracting today. The corporation owns part of the JL Towers office building in Anchorage's midtown, where Chugach also has its corporate offices, as well as office buildings on 34th Avenue and one it built on 36th Avenue, which are now leased.

The corporation also provides support services to Alyeska Pipeline Service Co.'s oil spill response fleet in its own region of Prince William Sound. The contract was recently renewed with a five-year extension by Alyeska. It took some tough bargaining and attention to costs, Buretta said.

This is the most significant contract Chugach has had with Alyeska, she said.

The manufacturing company Chugach owns is Wolf Creek Fabrication Services in Norfolk, Va. Chugach started the company in 2009 with a goal of diversification and further capacity development.

"The 8(a) program has helped us achieve the ability to be a strong company," Buretta said. "To me it is the missing link of the Alaska Native Claims Settlement Act, which provided land and cash but no real means to be a successful operating company."

Rising above past betrayals

Buretta doesn't like to dwell on Chugach's past problems but she isn't shy about talking of them.

Like some other regional corporations – Cook Inlet Region Inc. and Sealaska Corp. for example – Chugach was dealt a bad hand when Congress settled the Native claims.

Much of its home region is taken up by the Chugach National Forest, much like Sealaska's region in Southeast Alaska is taken up by the Tongass National Forest.

"We were left with mountain tops and glaciers to select," Buretta said, echoing Cook Inlet's Margie Brown of lands available to CIRI in 1971.

Chugach sued and eventually gained title to alternate land tracts but, as if to rub salt in a wound, the U.S. Forest Service essentially blocked access across national forest land when Chugach tried to harvest commercial timber on a land tract it owned adjacent to the forest.

The corporation was eventually able to harvest other lands it owned in the Icy Bay area to the east.

But another development that adversely affected Chugach, even before 1971, seemed a script right out of the 19th century history of broken promises to American Indian tribes in the Lower 48.

According to a history of the incidents compiled in 2000 for Chugach by a senior Chugach manager, Mike Williams, in 1968 U.S. Bureau of Land Management officials withheld information from the Bureau of Indian Affairs and the Chugach Natives on the status of then-federally owned lands where the Valdez Marine Terminal now sits

Chugach had land claims pending in the area.

The action effectively prevented Chugach's desired selection of the acreage as a part of its land settlement. It also allowed the state of Alaska to select the lands. The state later sold the land to the Trans-Alaska Pipeline System owners for $7 million.

Also, just before the 1971 land claims settlement, Chugach worked with the TAPS pipeline owners and other Native associations on an agreement to withdraw Native protests on federal land actions along the pipeline corridor.

The protests prevented BLM from processing the oil industry's applications for a pipeline right-of-way. By waiving their protests the Native groups, including Chugach, allowed the companies to proceed with their work to get a right-of-way.

The pipeline was eventually delayed by environmental lawsuits anyway.

The pipeline companies, however, committed to jobs and contracts for the Native groups in return for withdrawing the protests.

With Chugach, a plan for a Native-owned tug and barge company that would support the oil terminal operations was discussed and agreed to informally, according to Williams' history.

It was not to be, however. Chugach formed the tug company but wound up dealing with people in the pipeline group who were not party to the original discussions. Chugach did get some minor projects around the Valdez pipe yard, but nothing on the scale that was originally discussed.

In 1975, when pipeline construction was under way, a new procurement team at Alyeska Pipeline set up stringent new requirements on contracts. The upshot was that Chugach got no more work. The tug contract ultimately went to Crowley Marine Corp.

Buretta said all that is in the past. The 1989 oil spill provided a wake-up call for the industry on the importance of having good relationships and commercial dealings with Native communities in the Prince William Sound region.

Chugach now has excellent relations with Alyeska, she said.

Today Chugach is investing substantially in the future of its people, in education and sustaining of the Native culture of its shareholders. Expenditures on student internships have increased from $200,806 in 2005 to $571,300 in 2990; spending on apprenticeship programs are up from $212,613 in 2005 to $509,193 in 2009; scholarship support is up from $207,095 in 2005 to $690,010 in 2009.

The corporation maintains and operates the Nuuciq Spirit Camp on Chugach's Nuchek Island in Prince William Sound. The camp is a summer retreat for young shareholders or descendents of shareholders to learn about their culture from elders, an important tradition that has helped them survive in their homeland for generations.

Tim Bradner can be reached at

tim.bradner@alaskajournal.com.