PLANT CLOSURES, REINDUSTRIALIZATION AND PRIVATIZATION
THE PINELLAS SUCCESS STORY
Connie Callan and Sharon Karpinski
National Environmental Technology Network
The University of New Mexico
Albuquerque, NM
Paul Dickman
Department of Energy–Albuquerque
Albuquerque, NM.
ABSTRACT
The Department of Energy’s Pinellas Plant in Largo, Florida, which manufactured electronics for use in nuclear weapons, officially closed September 30, 1997. The Pinellas Plant converted to a private, commercial center for high-technology industry. This paper discusses the economic, regulatory and asset identification and transfer issues that were addressed as the Pinellas Plant closed.
A major effort for DOE planners was to identify the plant’s real assets. In the process of identifying assets (those properties which had value to private industry) the Department of Energy encountered constraints imposed by General Services Administration’s closure protocols which might preclude successful sale of the Pinellas Plant. Devising an alternate real estate and equipment transfer method became one of the primary Department of Energy goals in shutting down Pinellas Plant. The asset disposal method used (first, selling the facility intact to the regional redevelopment council, then cleaning and deactivating the plant) maximized reindustrialization opportunities.
To insure high technology reuse of the site, the DOE, Lockheed Martin, the Pinellas County Industry Council and the University of South Florida formed a de facto partnership to locate appropriate tenants. Preserving the technical workforce and infrastructure while developing commercial applications for these assets was a major goal.
Primary concerns were to re-employ the workforce which would mitigate the impact on the community and to accelerate the usual closure processes to save taxpayer funds. Identifying and promoting closure managers, devising flexible clean-up schedules to accommodate new lessees, implementing a Cost Plus Incentive Fee agreement with the site contractor, designing a community management entity and marketing the facility to appropriate private industries became the new mission goals.
The facility is now the Pinellas STAR Center, a community-owned business park employing over 600 skilled workers. The Economic Development Council projects more than 1,000 jobs in place by 2000. Related redevelopment activities have created an additional 400 jobs. Four of the new entrepreneurs on site are former Pinellas employees. Three additional companies off-site were founded by former Pinellas workers. 90% of their employees are displaced Pinellas personnel. The Economic Development Council projects more than 1,000 jobs attributable to Pinellas reindustrialization in place by 2000. We will examine how the reindustrialization coalition achieved these statistics, which would be admirable in private industry, while working within the context of a highly regulated government bureaucracy.
INTRODUCTION
The world changes. In 1985, when the United States nuclear weapons stockpile reached maximum, the Department of Energy’s weapons production industry directly employed over 27,000 people at seven major production plants scattered across the United States1. The peripheral jobs generated by these plants provided an additional economic engine for the areas surrounding DOE facilities. How to downsize this unique manufacturing entity in the face of changing political realities while preserving intellectual assets, nuclear technologies and the economies of the regions where the former plants were located will be an on-going national problem as we enter the next century. The first nuclear weapons facility to come to full closure—giving us a preview of things to come— was the Pinellas Plant in Largo, Florida, which ceased operations September 30, 1997. Pinellas was also the first Department of Energy plant to be reindustrialized by private industry, preserving jobs for the Pinellas Plant’s Cold War Warriors. There are many lessons to be learned from their experiences.
MISSION HISTORY
Pinellas Plant was a relatively small facility located in Pinellas Country, Florida that was constructed by the General Electric Corporation in 1956 to fabricate neutron generators. The generators, which were used to increase the yield of a nuclear weapon by pulsing neutrons into its core, were a complex product, difficult to manufacture successfully. To make them, General Electric recruited a resourceful, low-turnover workforce firmly rooted in the Largo area. It was not unusual to see brothers, sisters, fathers, daughters all working at the plant. The plant’s morale reflected this family atmosphere—there were picnics, a basketball team, volunteer clean-up days—and Santa landed his helicopter in the Pinellas parking lot every Christmas.
Over the next thirty years, Pinellas expanded to manufacture a number of sophisticated electronic components that required quality–conscious employees to build them. Within the Nuclear Weapons Complex, Pinellas was known for its ability to deliver quality products on time and under cost.
ORIGINAL CLOSURE ASSUMPTIONS
The Department of Energy announced the plant’s closure in 1994. Initially, the DOE’s intent was to shut down the facility and sell it to the highest bidder per normal General Services Administration practice. It was assumed that Pinellas’ highly skilled workers would find jobs either with the new owners of the plant, with the many private industries that had located in the Tampa Bay area over the forty years since Pinellas Plant was built or would transfer to Sandia National Laboratories in Albuquerque, New Mexico, where Lockheed Martin, the DOE’s contractor, would continue to manufacture neutron generators.
Then came the wake-up call. The facility was appraised. Pinellas, as it stood, was valued at only 2.6 million dollars, which was a small fraction of its construction and development cost. The problem was that the plant layout was both highly specialized and outdated. The site’s objective value appeared to be as raw land. Many Pinellas workers received a similar shock when they discovered their skills could not command commensurate salaries in the commercial sector. While the nuclear weapons complex manufacturing demanded both original thinking and absolute precision, private industry had little need for the level of quality control that weapons manufacturing required. Their lower wage scale reflected this. The workforce discovered that they were as specialized as the plant itself.
REVISING THE CLOSURE MODEL
There were two ways to approach closing the facility. The Department of Energy could transfer neutron generator manufacturing to another site, shut down and clean up Pinellas Plant to DOE standards and then turn the property over to the GSA for disposal. This was "normal" closure procedure but there were drawbacks. The GSA required that the DOE be responsible for five quarters of plant maintenance after remediation was complete. Even with an accelerated clean-up and closure plan, which would require higher funding levels in the shut-down phase, the plant could not be released to the GSA for disposal until the year 2000. Then the site would sit idle for two or more years while the GSA completed its disposition protocols. Because of this long time frame, any economic redevelopment would have to take place independent of the facility, off-site and not related to plant capabilities. Spin-off industries utilizing former Pinellas employees would depend on those employees generating their own venture capital, a high-risk procedure. Finally, if the plant was sold via GSA protocols, the community would have little or no input about it’s reuse.
Closing the normal, "government" way would require the DOE to pay for three or more years maintenance of an empty plant while also leaving both the community and the employees attempting economic redevelopment at primarily their own expense without the benefit of a pre-established manufacturing site to attract new business. The potential for dissatisfaction with Department of Energy practice at all levels (local, state, Federal) was great. It was also likely that worker morale would nose-dive during the closure. Low morale could further slow down a mission that, even if working smoothly, seemed scheduled to proceed at a snail’s pace.
It became clear that this time line would doom effective redevelopment. Private industry could not afford to wait on "the government way". It tied up their capital too long and the plant’s most valuable technical asset, its employees, would be lost as the workforce sought employment at other locations when their DOE job ended. The government way also cost the Department of Energy money. They would be performing site maintenance to stringent DOE requirements at very significant cost well into the next century.
ENVIRONMENTAL ISSUES
The Pinellas Plant was relatively clean with respect to most DOE facilities. The clean-up involved solvents and small amounts of tritium. Because of the legacy that DOE has with other sites, the difficulty was convincing the regulators and the community that the site was not a significant environmental concern.
Protection of people and the environment was always the top priority in developing the environmental clean-up process for closure. This process included balancing the on-going activities for economic development with the clean-up activities.2
DESIGNING A REINDUSTRIALIZATION PARTNERSHIP
To encourage successful redevelopment using the real assets of Pinellas— intellectual properties, stable, trained workers with strong community ties, precision machine tools and equipment already in place in the plant and the appealing location near Tampa Bay— the Department of Energy and Lockheed Martin realized they would have to develop a fresh approach to shutdown and reuse. The DOE, Lockheed Martin, the Pinellas employees, the communities near the plant and the University of South Florida joined forces in an innovative plan to environmentally clean and close the DOE facility. Key to this was developing a plan to reindustrialize the Plant and, at the same time, establish a Manufacturing Training and Education Center at the Plant to help Florida-based businesses use the Pinellas Plant’s unique assets. Prompt sale of the facility to the community was critical to this plan. If the facility was sold to the community before remediation, and then leased back, the sale would serve to establish firm deadlines for all the participants and would also considerably cut DOE maintenance costs. This method (sale prior to remediation and reindustrialization) had never before been used to close down a mission. There are many lessons to learn from this successful experiment as the Department of Energy downsizes into the twenty-first century.
ASSET DISPOSITION STRATEGIES
The pressing need at Pinellas was to dispose of everything much faster than the five to six years it would take with the General Services Administration’s closure process. The Department of Energy’s revised strategy was to devise a method to transfer the real estate and the equipment within it to the community quickly and at low cost. The DOE determined that, legally, they could sell the facility under the provisions of the 1954 Atomic Energy Act which sidestepped the cumbersome General Services Administration process. The DOE and Lockheed Martin had set a firm deadline for inventory build-up of neutron generators prior to the transfer of that mission to Sandia Laboratories. It was a brutal deadline, a year ahead of what had been originally projected for ending production at the plant. The Pinellas employees, again demonstrating that they were the plant’s most unique asset, met both the time deadline and the inventory quota even though they were, effectively, working themselves out of jobs. Production of weapons components ceased in September 1994.
Early in 1995, the DOE sold the site to the Pinellas County Industry Council (PCIC), then immediately leased it back from the council at a lease fee equal to the value of the property. The actual plant closure, the date on which all DOE business would stop, took place two years after the plant was sold to the industry council. This early sale was the cornerstone for successful closure.
Selling the plant with many of its specialized laboratory and manufacturing areas intact, complete with their associated equipment meant that the Pinellas County Industry Council had a much better chance of attracting new high technology tenants who might, in turn, create new jobs for the Pinellas workers. The plant equipment included in the sale was critical. Most of it would have been prohibitively expensive for new tenants if purchased on the open market. As part of the reindustrialization process, the DOE and the Industry Council collaborated to devise a "tenant profile" which the council used as a guide for recruitment and leasing. They were looking for high tech industries engaged in "clean" manufacturing since Pinellas was to become a multi-tenant plant. These guidelines, which remained fluid to encourage maximum flexibility, were also designed to encourage the preservation of Pinellas’ intellectual assets and to utilize the technologies developed (and workers trained) under DOE ownership. The Pinellas Plant, in the DOE years, was well-known for its innovative contributions to zero tolerance manufacturing.
In truth, a sound case could be made that the Department of Energy actually saved money with this closure and reindustrialization process that, on its face, appears to be so advantageous to the Industry Council. Time is money, particularly when it is spent to secure and maintain a vacant nuclear weapons facility. By circumventing the sluggish GSA closure process, the DOE calculates that it saved at least twenty-nine million dollars of the taxpayers’ money.
The Department of Energy implemented another experiment to encourage swift closure as site remediation began. Lockheed Martin and the DOE entered into a Cost Plus Incentive Fee/Cost Plus Fixed Fee contract instead of the more usual Cost Plus Award Fee, which does not specify a contractor completion date. Initially, the Department of Energy wanted to institute a Firm Fixed Price Contract, which would shift risk to Lockheed Martin and provide a strong incentive to the contractor to meet or beat deadlines but since no one had ever cleaned up an entire site before—and therefore the risk parameters could not be accurately accessed—the two parties entered into compromise arrangement. Under this contract, the contractor would be paid for getting the job done, as was the practice in a standard contract, but dates for completion of the clean up of each section of the plant were also specified. If the contractor completed remediation of a specified area ahead of schedule, they would receive additional money, an incentive bonus. This incentive experiment had the desired effect. Lockheed Martin collected almost all the bonuses offered. Remediation work finished ahead of schedule at a significant savings to the Department of Energy.
LESSONS LEARNED
In the process of implementing their Pinellas experiment, the Department of Energy and its contractor, Lockheed Martin, learned a number of lessons applicable to future closures:
It is extremely important to set firm deadlines—for sale, for ceasing production, for clean-up, for total closure. Firm dates make the closure "real" to both the workers and the community. If everyone knows, absolutely, that the plant will close on September 30, 1997, no matter what, they will get through denial and grief much faster and then work on their future rather than mourning the past. A firm closure date motivates tenant recruiting, gets community ownership entities devised and gives everyone a goal; closure becomes their new mission.
Support those firm deadlines with rewards—monetary and otherwise. Incentive bonuses, retraining benefits and severance payments are obvious rewards. Not so obvious but just as necessary to employee morale is the need to preserve the employees’ achievements. People need to know that their efforts will not be forgotten, particularly when they worked within the Nuclear Weapons Complex where everything they did over an entire career might be classified. Treat their history—and their work space—with respect.
Streamline the bureaucracy to reflect the new mission. Closely examine your production, safety and personnel processes to see if they really apply to the closure process instead of the production process. Don’t cut corners but do make sure that your procedures make sense in a closure scenario. The goal here is an orderly, but rapid, transition.
Communicate honestly with your workers. As Ed Patenaude, the Area Manager of the Pinellas Plant, said so well, "Tell them everything—the good, the bad and the ugly!"4 If you don’t know what’s happening, tell them you don’t know. This builds trust. People who trust you will more easily accept change. Trust also circumvents rumor. Remember, if you don’t tell people what’s going on, they will make it up!5
The plant contractor will discover, as the closure process proceeds, that production-oriented staff isn’t necessarily good at shutting down. Promote new talent as it appears. Encourage workers who aren’t comfortable with the closure goals to step out of the way.6
The contractor needs to be flexible about the clean-up schedule. The focus here is to meet deadlines but also to get the plant ready for new tenants. The contractor will need to balance scheduled clean-up activities around the needs of these potential tenants rather than what is convenient for the contractor or, sometimes, what seems the most logical plan.
The community redevelopment office must promptly design a management entity to run the plant day-to-day and to reindustrialize the facility. The redevelopment office may have had little previous experience at managing large, complex facilities. Utilize local academic resources to assist them. The Pinellas County Industry Council partnered with the University of South Florida to create both the Technology Deployment Center for project development at the new center and the Manufacturing Training and Education Center to expand the market for these new products.
Marketing the facility to new tenants will require a national (possibly international) recruiting effort on the part of the community redevelopment office. This is the most effective way to locate sufficiently capitalized high tech tenants that conform to the re-use guidelines. The pool of former plant employees is the best source of personnel to manage the day-to-day plant activities, to staff the education centers and to recruit new tenants. Redevelopment managers should also encourage entrepreneurship among former employees. This policy both supports the local economy and speaks to the DOE tenant guidelines. Motivate former plant employees to assume acceptable levels of risk by providing small business counseling and start-up financial assistance—initial lease concessions, for example.
SUCCESSFUL PRIVATIZATION
Pinellas Plant is a success story. The Department of Energy and Lockheed Martin closed the plant, and the community reindustrialized the site and privatized the work force, saving hundreds of jobs, at least three—possibly as much as five—years ahead of schedule. The Pinellas outcome is certainly not what one expects of "the government way".
Today the former Florida weapons plant is the Pinellas STAR Center, an attractive business park overlooking a small lagoon located midway between Largo and Clearwater. The new tenants are exploiting cross-over commercial applications of processes that were originally developed at Pinellas7. The site is now using the unique assets of the facility to develop mercuric iodide based radiation detectors, to manufacture quartz nuclear detection sensors, to produce commercial application thermal batteries similar to the batteries Pinellas made for many years for the NWC, and to design and fabricate high quality machine tools and production lines. Pinellas’ environmental and climatic testing laboratory applies its thirty years experience within the DOE to test structural dynamics and temperature, altitude and moisture tolerances for private industry instead. The Largo Regional Electronic Commerce Resource Center (Department of Defense) which provides assistance to government agencies in Florida and Puerto Rico as they initiate electronic commerce capabilities, is located at the STAR Center. Precision machining to weapons manufacture standards can be obtained through yet another Pinellas business. All these tenants conform to the tenant profiles that were designed to complement the Department of Energy’s final mission in Florida: to preserve the intellectual properties and technologies developed at Pinellas Plant during its forty years of nuclear weapons production.
The St. Petersburg/Clearwater Economic Development Council, continues to actively recruit additional business ventures, some from as far away as The People’s Republic of China. Many of the faces within the plant are old hands there. The facility has re-employed over two hundred former plant workers. In all, 940 jobs in the community are either new or retained with an eventual 1,600 plus jobs forecast by 2000. Four of the businesses now located in the STAR Center were founded by former employees. Three more were "employee-inspired" through contacts made during the Department of Energy years. There are, in addition, five spin-off companies located off-site which utilize both DOE-derived technology and former Pinellas personnel.
The privatization of Pinellas Plant was accomplished at an actual savings to the taxpayer of at least twenty-nine million dollars. Since Pinellas was the first DOE plant to close, benchmark downsizing statistics are still difficult to assess. What is not in question is the success of the process used to convert Pinellas. It saved jobs, which was the responsible thing to do in a community that had served the Department of Energy so well for over forty years. It preserved and reused the technology base developed at government expense, which was the responsible thing to do for the country. It even saved taxpayer money by accelerating the clean-up and closure, a prudent action in an era of stringent budget accountability. As other Nuclear Weapons Complex managers guide their plants through closure, they would do well to study the Pinellas model. Pinellas did it right!
NOTES
ACKNOWLEDGMENTS
This paper was based on research conducted in 1997 by The National Environmental Technology Network at The University of New Mexico. The lessons-learned study included a video entitled "Plant Closure and Commercialization -- A New Dawn at Pinellas". The project was partially funded by The Department of Energy, Lockheed Martin and the Waste Management Education and Research Consortium. Over 85 hours of interviews of individuals involved in the plant operations and closure were conducted during the research phase.
The following people graciously permitted us to interview them and use their comments as part of the Pinellas Project: John Arthur, Eileen Beaulieu, Marilyn Bossard, Byron Cason, William Castoro, Joseph Champoux, Nicki Clark, Janet Clayton, Robert DeGrass, Paul Dickman, Patsy Dillard, Mark L. Dopp, Kesha Flantroy, Rick Glass, Rhea Graham, H. Frank Gregory, Jr., Lawrence Hare, Rose Haughbrook, Andrew H. Hines, Jr., Brenda Holder, Gerry Krause, Charles Loeber, Deborah Maroney, Dolly Masi, Virginia McCauley, Elizabeth Moller, Patrick Noone, Linda Oberting, Alan Parker, Ed Patenaude, C. Gene Pressoir, Nancy Sawayda, Richard R. Streeter, William E. Swartz, Debbie Swichkow, David Trojnar, Donald G. Trost, Bruce Twining, Joel Weiss, Ed Wegman, and W.C. "Bill" Young.
Selected Readings: Best Practices and Lessons Learned from the Disposition of the Pinellas Plant, by Environmental Business Strategies Corp., Alexandria, VA and RUST Geotech, Inc., Albuquerque, NM December, 1996
Pinellas Plant Site Close-Out, by Lockheed Martin Specialty Components and the DOE Pinellas Area Office, December, 1997.
REFERENCES
This paper was developed from a series of interviews conducted by the University of New Mexico’s National Environmental Technology Network for their video production, Plant Closure and Commercialization; A New Dawn at Pinellas, which documents the shut-down and reuse of the Department of Energy’s Pinellas County, Florida plant. The primary sources used were taped interviews with: