by David B. Cohen
Co-Chair, DWT Pacific
June 11, 2009

Contractors and other companies continue to track opportunities that will arise in connection with the planned military buildup in the U.S. Western Pacific territory of Guam. In April, the U.S. Department of Defense held its third “Industry Forum” on Guam to provide private companies with a status report on its plans for Guam. The event sold old well in advance, with almost 1,500 businesspeople from several countries in attendance.

The centerpiece of the Guam military buildup will be the relocation of approximately 8,000 U.S. Marines and 9,000 of their dependents from Okinawa to Guam. This relocation will require an estimated US$10.27 billion worth of military infrastructure, including a new U.S. Marine Corps base, to be constructed on Guam. The U.S. and Japan have agreed to share the cost of this infrastructure. Japan will foot approximately 60 percent of the bill, providing US$2.80 billion to the U.S. Government to be used for operational facilities, barracks and other infrastructure and another US$3.29 billion in the form of financing from the Japan Bank for International Cooperation (JBIC). The JBIC financing will support public-private partnerships that will develop and operate military housing and utilities.

In addition to the infrastructure that will be required in connection with the relocation of the Marines, additional billions of dollars will be spent on new infrastructure on Guam for the other branches of the U.S. military: the Navy the Air Force and the Army. Billions of additional dollars will be required on the civilian side to enable Guam to handle the approximately 55,000, mostly civilians, who are expected to move to Guam because of the buildup over the next few years. All of those new residents will need places to live, places to shop, places to dine, goods and services to buy, etc., meaning that there should be plenty of private sector opportunities in almost every area to complement the opportunities in government-funded infrastructure projects. For this reason, Guam has captured the attention not only of major construction contractors, but of all types of businesses.

The recent Industry Forum attracted companies not only from the U.S., but also from countries such as Australia, New Zealand, Japan, Korea and the Philippines. Opportunities are available to non-U.S. companies in all aspects of the Guam buildup. For military construction contracts, U.S. companies bidding to be prime contractors get a 20% price preference over non-U.S. contractors. For example, a non-U.S. company that submitting a $1 million bid will be treated as having submitted a $1.2 million bid, meaning that a U.S. company bidding less than $1.2 million will be deemed to have submitted a lower bid. That preference, however, would not prevent foreign contractors from joining together with U.S. contractors to form companies that would be treated as U.S. companies. That preference also would not prevent non-U.S. contractors from participating in projects as subcontractors. Finally, the preference applies only to military construction projects: it does not apply to procurement contracts for supplies, food and other goods, and does not apply to civilian infrastructure projects that may be procured by the Government of Guam or other local authorities. Also, the 20% price preference for U.S. prime contractors will be waived for US$2.8 billion in military construction projects that will be funded by the Japanese government. Finally, non-U.S. companies are free to jump into Guam’s private economy, building homes, developing commercial property, opening stores, supplying goods, providing financing, providing insurance, etc.

Davis Wright Tremaine can advise non-U.S. businesses on all relevant requirements to pursue opportunities in Guam, including those relating to government contracting, immigration, tax, employment law, licensing, and other areas. We can also help you structure and document joint ventures and other collaborations with U.S. companies that might be helpful in entering the Guam market. Feel free to contact me at davidcohen@dwt.com if I can be of assistance.