Fate of Alaska Native contracting program is unclear

The Defense Department's top civilian procurement official told a Senate panel on Thursday that additional competition for Alaska native corporation contracts may be appropriate in certain circumstances.

Shay Assad, Defense's acting deputy undersecretary for acquisition and technology, suggested that the Pentagon could be willing to reduce its reliance on ANCs for sole-source contracts. Assad appeared before the Senate Homeland Security and Governmental Affairs Subcommittee on Contracting Oversight.

Assad has ordered a detailed review of all agency awards to ANCs in fiscal 2008 and 2009 through the Small Business Administration's 8(a) Business Development program, in part, to determine why Defense is issuing so many of those contracts without competition. He also called for more oversight of subcontracts to ensure that ANCs are following federal regulations and performing at least 50 percent of the work associated with the awards.

"I respect the need to provide economic opportunities for 8(a) ANCs," he said. "However, based on the department's experiences with the 8(a) program, I think there may be ways to promote additional competition in appropriate circumstances. … Taxpayers would benefit because their dollars would be more efficiently and effectively spent."

Defense's endorsement of more competition for Alaska native corporations is significant. The overwhelming majority of sole-source contracts to ANCs are issued through Defense and any policy changes could dramatically affect the corporations' fortunes.

As it has done in the past, SBA defended the ANC program and offered little in the way of support for change.

"We are committed to conducting a measured analysis that carefully reviews the potential for extending the application of competition to ANC actions, in an appropriate manner that is consistent with business development for these entities," said Joseph Jordan, SBA's associate administrator for government contracting and business development.

A standing room-only crowd -- including dozens of Native Alaskans, lobbyists and business owners -- attended the hearing, which focused on the contracting advantages afforded to ANCs.

The stakes are high for Alaska native corporations. The success of some corporations has been tied implicitly to preferences that allow them to receive sole-source contracts of any size. ANCs also are exempt from annual revenue caps and are permitted to have multiple subsidiaries in the 8(a) program as long as they operate in different sectors.

A recent report by the SBA inspector general found that a handful of successful ANCs might be crowding out other 8(a) firms and often do not provide best value to the government.

"From a taxpayer's perspective, it's hard to see why the Alaska native corporations should be able to receive enormous contracts without any competition at all," said subcommittee Chairwoman Sen. Claire McCaskill, D-Mo.

Members of Alaska's Senate delegation, who were invited to participate in the hearing, disagreed.

"I fear that we are moving down the road to breaking yet another promise to the Indians," said Sen. Lisa Murkowski, R-Alaska. "If we are not careful, policy changes prompted by this subcommittee's inquiry will go down in history as another of the ill-conceived policies that we in the Congress are later forced to apologize for."

Before the hearing, the subcommittee released a summary analysis of contracting documents provided to the panel by 19 of the largest ANCs. The report found that in fiscal 2008 four ANCs ranked among the most successful 100 recipients of all federal contract awards while 11 had annual revenues higher than SBA's typical limit.

The subcommittee also discovered previously unreported contracting advantages for ANCs. For example, prime contractors can receive a 5 percent bonus for subcontracting with an ANC. But the panel learned that in many instances, ANCs are earning that fee themselves by subcontracting work to their own subsidiary.

Despite their success, only 5 percent of corporation employees are native shareholders and nearly 70 percent of top executives were non-natives, the subcommittee found.

The report noted that profits from ANC contracts provide important social and economic benefits to native shareholders, the bulk of whom live in poverty. But the subcommittee found that, on average, only $615 in annual dividends, scholarships and other benefits per person make their way back to the native community.

Native Alaskans who have benefitted directly from the ANC program argue, however, that the program is working and making a difference for those living in the most difficult of circumstances.

"We need more benefits for our people," said Sarah Lukin, executive director of the Native American Contractors Association. "And more native employment, more work in our native communities and more native executives. To cut the program that got us this far is absolutely wrong."

But others believe the ANC program is unfair. Cirrus Technology, Inc, a historically underutilized business zone designee and service-disabled veteran-owned small business in Huntsville, Ala., has lost several contracts that were bundled and awarded to ANCs. The firm no longer bids on procurements if there is a history of ANC involvement, said Mark Lumer, the company's senior vice president of federal programs and a former senior procurement official with the Army.

"I firmly believe that many small businesses will routinely bypass procurements where ANCs are involved," Lumer said, "because the chances of winning are so small, even if they are allowed to compete in the first place."