Not just a pretty place

Puerto Rico looks to lure more federal contractors

Old and new San Juan converge as Puerto Rico continues to build an information technology infrastructure.

Lawrence Sawyer

The Commonwealth of Puerto Rico is
touting its ties to the United States and its
tax benefits to induce information technology
providers and systems integrators to
establish businesses on the island. At the
same time, home-grown IT firms are looking
northward, hoping to gain a bigger
share of the federal marketplace.

Long thought of primarily as a tourist
destination and rum producer, Puerto
Rico's main economic engine is manufacturing,
which accounts for almost 45 percent
of the commonwealth's gross domestic
product, according to the Puerto Rico
Industrial Development Co. (Pridco), a 65-
year-old business consulting service based
in San Juan.

A recent IDC survey found that Puerto
Rico's IT sector added $587 million and
36,900 jobs to the local economy in 2005.
IDC added that the IT sector is expected to
grow at an average annual rate of 2.8 percent
through 2009, when employment in
the sector will top 40,000 workers.

With those numbers in mind, Boris
Jaskille, executive director of Pridco, led a
delegation of Puerto Rican IT companies to
the FOSE government trade show last
month in Washington.

Pridco had two goals for the show. "One is
to help identify new markets for entrepreneurs,"
he said. "But it's also to help get the
message across among federal procurement
officers that Puerto Rico has competitive
advantages that need to be looked at."

Those advantages include Puerto Rico's
commonwealth status, which means its residents
are U.S. citizens, and a highly educated,
bilingual workforce, he said. "In the post
9/11 era, and the homeland security and
defense atmosphere that we're living in
right now, the talent itself is not [sufficient].
It's actual U.S.-based talent" that is of paramount
importance, he said.

Puerto Rico has had a 20-year relationship
with the Defense Logistics Agency's
Procurement Technical Assistance
Program, which contributed $97 million in
federal contracts and the creation of 523
new jobs on the island in fiscal
2005, Jaskille said. Overall, federal
agencies have granted
Puerto Rican IT companies
more than $362 million in
contracts as a result of the
alliance between Pridco
and DLA.

"We have our own
internal revenue code,"
Jaskille said. "It has very
particular advantages."
For one, workers pay no
federal income tax
because the commonwealth
is outside U.S. tax
jurisdiction. And companies
doing business in
Puerto Rico pay no U.S.
corporate taxes unless
their earnings are
returned to the United
States, he added.

"Not only do we have the same regulatory
framework, if you will, that you would find
in the states in terms of the monetary system
and the financial, legal and banking
and insurance systems, but we also have
intellectual-property protection by means
of U.S. patent laws," Jaskille said.

GOING IT ALONE

Rock Solid Technologies is a 10-year-old
IT services company that came to the FOSE
show as part of the Pridco delegation. The
San Juan-based company has been partnering
with Hansen Government Solutions, a
Rancho Cordova, Calif., supplier of application
software to federal and state agencies.
The company is now making its first
attempt to get into the federal market on its
own, said Rick Brown, president of Rock
Solid.

"We do a lot of business with the government
of Puerto Rico, and we are looking
to export services into the [U.S.]
public sector," he said. The services
include applications
development, implementation
of Microsoft products
such as customer relationship
management and other support services.
Rock Solid would like to grow
by adding some IT outsourcing
services, such as those performed
now in India and
Pakistan, whose low wage scales
have been a major attraction for
U.S. firms.

"We're looking for outsourcing
opportunities which by law
must be brought back to the
U.S. and performed by
American companies because of
security reasons," Brown said.

Rock Solid is targeting agencies
such as the Defense,
Homeland Security and Justice
departments. And to sweeten
the pot, "we're looking to expand
to the west coast of Puerto Rico,
where the [labor] costs are substantially
lower" than in San
Juan, he said.

Pridco is steering Brown
through the maze of federal
contract vehicles and regulations.
"That's what we're trying
to understand," he said. "Is there
an opportunity to do [outsourcing]?
How would we do that?
How do we get started?"

WHERE TO START

Companies interested in
Puerto Rico often do not know
where to begin. "We help them
with their business plans and
identifying facilities where
they are going to establish the
business," said Marcos
Polanco, director of the information
and communication
technologies business unit at
Pridco.

Rock Solid was joined at
FOSE by Avant Technologies of
Caguas and Genesoft Labs of
San Juan, both security and IT
services providers; and Atlasbits
Inc., a minority-owned software
development and management
outsourcing company in
Mayaguez.

Lockheed Martin Corp. set
up a $300,000 research partnership
with the University of
Puerto Rico at Mayaguez in
2006 to recruit graduates for
the company and to work on
two projects. One involves
using algorithms to extract new
forms of data from radar and
the other seeks to learn more
about chemical explosives
detection through simulations,
said Ivette Falto-Heck, a systems
engineer technical assistant
and on-site engineering
domain director at Lockheed
Martin Information Systems
and Global Services.

"We have two Lockheed
Martin principal investigators
working with their counterparts
at the university on those two
projects," she said. They work
remotely from Phoenix, she
added.

The partnership is open-ended,
but the research projects
come up for renewal and funding
annually. "The $300,000
runs through this December,"
Falto-Heck said.

Hewlett-Packard Co., which
has had a presence in Puerto
Rico for many years, has
research agreements with the
University of Puerto Rico in digital
publishing. Polanco likened
the arrangement to a governmentwide
acquisition contract. "They can very easily go out and
conduct research without having
to write new [terms] every
time," he said.

Other U.S.-based contractors
are expanding their business in
Puerto Rico.

For example, Polanco said
Honeywell Aerospace has set up
a business process outsourcing
facility for its defense and space
businesses, and Pratt and
Whitney is enlarging its jet
engine plant from 18 employees
in 2003 to a target of 500 this
year.

Associate editor David Hubler
can be reached at dhubler@1105govinfo.com.


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