Business is booming for Alaska native corporations

By Robert Brodsky

March 6, 2009

Editor's Note: This is the first in a series of articles accompanying the feature "Out in the Cold" in the March issue of Government Executive. The next installment will examine potential congressional changes to the Alaska program.

Small firms nationwide are struggling through the economic recession, cutting health benefits and laying off longtime workers. But for at least one segment of the industry, business has never been better.

In fiscal 2008, companies owned by Alaskan regional and tribal corporations earned a record $5 billion in federal contracts, nearly 10 times the $506 million they earned in fiscal 2000, according to new data analyzed by Government Executive. The data, compiled by Eagle Eye Publishers of Fairfax, Va., makes clear the extent of ANC prominence.

The corporations have won jobs in virtually every state and major sector, from reconstruction contracts in Iraq to information technology agreements in Washington. Individual corporations have thrived. Five ANC parent corporations have brought in $2 billion or more in contracts since 2000, with Anchorage-based Chugach Alaska Corp., leading the way at $4.5 billion.

Related Graphic: Alaska Native Contracting

This slideshow documents the explosive growth in contracting with Alaska native corporations in a series of charts.
Click here to view the graphic.

ANCs earned two-thirds of the $24 billion they accumulated in prime contracts since fiscal 2000 through the Small Business Administration's 8(a) Business Development program, according to the Eagle Eye data. That represents about 18 percent of the 8(a) program's overall contract spending.

Federal acquisition specialists said the data shows that the program, which was designed to help small and disadvantaged companies, has been undermined by a system that rewards companies that earn hundreds of millions in annual revenue.

"The ANC program, as currently implemented, is a blunt instrument that distorts the procurement system, injects well-founded cynicism into the process, and reinforces the belief that government procurement is more about allocating political spoils than ensuring that the government receives value for taxpayer money," said Steven Schooner, who teaches contracting law at The George Washington University.

Alaskan firms argue that it is unfair to compare them to other small businesses that operate under a model designed to benefit individual entrepreneurs. ANCs reinvest much of their revenue in the native population through their shareholders. They also note that they spend millions of dollars on cultural and social programs that benefit the larger Alaskan community.

"If an individual has a $5 million contract, all of the benefit goes to that person," said Chris E. McNeil Jr., chief executive officer of Sealaska, a regional corporation in southeast Alaska with 17,600 shareholders. "That is simply not the case with Alaska native corporations and tribes because that benefit is diluted down to the tribe or the native corporation."

While most small businesses do not begrudge the government's efforts to provide relief to citizens in Alaska's most impoverished regions, their anger stems from the competitive advantages provided to ANCs.

Through legislation spearheaded by former Republican Sen. Ted Stevens of Alaska, ANCs can win sole-source contracts of unlimited value. Sole-source contracts for other 8(a) firms are capped at $3 million, or $5 million for manufacturing. And while other small business owners can have only one 8(a) company at a time, ANCs can have multiple affiliate businesses in the program, as long as they operate in different sectors.

ANCs have made sound use of these competitive advantages, rotating new subsidiary firms into the 8(a) program after nine years, which is the maximum time companies can stay in the program.

According to the Eagle Eye data, 68 percent of ANC contracts since fiscal 2000 were sole-source awards, made without any competition. That figure does not include follow-on contracts, when an agency exercises an option to extend an agreement that already has been awarded. The percentage of noncompetitive awards to ANCs has grown slowly, reaching as high as 71 percent in fiscal 2007.

Small business advocates argue that the program is out of balance and desperately in need of reform.

"I don't think anyone will dispute that there is a need for some type of small business assistance for Alaska natives," said Guy Timberlake, chief executive officer of the American Small Business Coalition in Columbia, Md. "That's not the issue. It's about the perverted access they have with unlimited dollar amounts and the noncompete capabilities. That's really what has twisted the program to a point of really being ridiculous."

By Robert Brodsky

March 6, 2009