McCaskill will wait on Alaska native contracting reform

The contracting preferences afforded to Alaska native corporations are safe -- for now.

Sen. Claire McCaskill, D-Mo., announced this week that she will postpone temporarily new legislative changes for the Alaska native corporation contracting program. McCaskill, the chairwoman of the Senate Homeland Security and Governmental Affairs Subcommittee on Contracting Oversight, held an emotionally charged, standing-room-only hearing on the ANC program earlier this month.

"Reform in this area is going to happen," McCaskill said in a statement this week. "It's not a matter of if, but a matter of when. The process caused this slowdown, but has not impacted the determination to restore competitiveness in government contracts."

On July 22, McCaskill proposed an amendment to the fiscal 2010 Defense authorization bill that would have eliminated the ability of ANCs to win Defense contracts of unlimited value without any competition. All other contractors operating in the Small Business Administration's 8(a) Business Development program have their sole-source contracts capped at $3.5 million, or $5.5 million for manufacturing.

McCaskill's amendment -- one of the last to be submitted for the spending bill -- also would have lifted an obscure contracting provision that allows Alaska native corporations to earn a bonus when they subcontract with their own subsidiary. Federal acquisition rules allow prime contractors to receive a 5 percent bonus for subcontracting with an ANC. But that rule does not distinguish when the prime contractor is an ANC and the subcontractor is its own subsidiary.

In an interview on Wednesday with Government Executive, Sen. Mark Begich, D-Alaska, said he learned of the amendment only when it was introduced by McCaskill. Begich said he had an "aggressive, heated discussion" on the floor of the Senate with McCaskill.

"I approached Sen. McCaskill and told her that this was premature and not the right process," Begich said. "Many people [from Alaska] flew in for the [subcommittee] hearing and they thought there would be a process in which they would be able to submit ideas for the program… So, I argued aggressively with Sen. McCaskill why this item should be pulled and not offered."

The next day, he said, McCaskill called him to say that she was pulling the amendment.

A Democratic subcommittee official, however, suggested that McCaskill ultimately chose to wait on pursuing ANC reforms to better coordinate her efforts with the Senate Committee on Small Business and Entrepreneurship, which also has jurisdiction over the 8(a) program.

The Senate passed the Defense authorization bill Monday evening by a vote of 87-7. It now heads to conference committee.

McCaskill kept the hearing record open for 15 days so interested parties, including Native Alaskans, could submit their ideas for ways to improve the ANC program, Begich said. That period had not expired at the time of the proposed amendment.

"At the end of the day, we may not agree on the harder issues like the [sole-source] cap, but I think the idea of just throwing in an amendment the night before and trying to muscle it through was not appropriate," Begich said.

Begich said he hopes to work with McCaskill to shape a new reform package. Both sides, for example, agree SBA needs more resources and funding to better monitor the ANC program. Additional changes, he said, should focus on small business reform as a whole, rather than on one particular entity.

The subcommittee official declined to provide a timetable for reintroducing ANC reform legislation.

The stakes of legislative reform are extraordinarily high for Alaska native corporations. The success of some ANC's 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.

McCaskill's subcommittee has found that contract awards to the Alaska firms increased tenfold from $508 million in fiscal 2000 to $5.2 billion in fiscal 2008. Government Executive reported similar findings in March.

A recent report by the SBA inspector general also found that ANCs are likely crowding out other 8(a) firms. In fiscal 2008, contract obligations to ANCs represented 26 percent of total 8(a) dollars -- double the percentage in fiscal 2004, the report said. ANCs, however, represent just 2 percent of all 8(a) companies.

Native corporations are facing other troubles as well. An ANC contractor was recently fined $163,000 when the Federal Protective Service discovered, during a surprise inspection of the Food and Drug Administration's headquarters in Silver Spring, Md., that 58 security guards lacked the proper credentials. According to a report in the Washington Post, the guards from Chenega Integrated Services, a subsidiary of Chenega Corp., have since been reassigned.*

*The Washington Post has since corrected its original report.

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