Federal Contracting Preferences For Alaska Native Firms Spark Controversy
Published in the Fairbanks Daily News-Miner
By: Dermot Cole
Under a federal program designed to give Alaska Native corporations a preference in competing for government contracts, a company can get a 5 percent bonus for doing business with one of its own subsidiaries.
That was the assertion Thursday in a congressional hearing called by Sen. Claire McCaskill to address questions about laws and regulations that give Alaska Native firms greater access to sole-source contracts than many other businesses.
"What would be in your mind a rationale for allowing a corporation a 5 percent bonus for subcontracting with one of their affiliates, of taxpayer money?" the Missouri senator asked at one point.
While one veteran contracting officer said he thinks the bonuses are permitted by law but not allowed by regulation, McCaskill said, "I believe we've got people that are allowing it."
If these bonuses are indeed being paid, then the Alaska advocates of federal contracting preferences should support a revision in the program to end the practice, lest they lose the larger battle, which is to preserve the key advantages of the 8(a) program.
Judging by the hearing Thursday in Congress, the supporters and opponents are about as far apart as Alaska and the Lower 48.
Alaskans defended the preferences as a way of helping impoverished people and providing good service to the government, while critics from the Lower 48 said the system is giving Alaska Native firms too much power, damaging small business and wasting money.
The 8(a) program is the chief federal effort to help small businesses from disadvantaged groups get access to contracts, but Alaska Native corporations have special advantages not available to others because of amendments pushed through Congress by Sen. Ted Stevens more than 20 years ago.
The main advantage for the Alaska firms is "their ability to obtain unlimited sole-source awards of any value," said Debra Ritt, the assistant inspector general for auditing at the Small Business Administration.
Most 8(a) participants from Outside can get sole-source awards of no more than $5.5 million for manufacturing or $3.5 million for other services.
For the Alaska companies, the contracts sometimes are worth hundreds of millions.
Critics, including McCaskill and Lower 48 contractors, raised numerous issues about the power of Alaska Native firms to acquire sole-source contracts with the federal government.
McCaskill said a tiny percentage of Alaska Native corporation shareholders actually work in the companies, and small businesses across the country are being shortchanged because they don't have the same preferences.
Sens. Lisa Murkowski and Mark Begich and representatives of Alaska Native firms defended the preferences granted to Native corporations as a proven way of helping large numbers of impoverished people.
"We want to make sure that it works not only for Alaska Natives, but when they assume these government contracts whether they be in Fort Drum, New York or wherever and are able to employ thousands of people, helping the economic recovery of this country, that it works on all sides," Murkowski said.
"I do think that the message from Alaskans is that we have a success story here. We're proud of it and we're pleased to be able to speak to it," Murkowski said.
Julie Kitka of the Alaska Federation of Natives said the preferences granted Alaska Natives are "literally" part of the Alaska Native Claims Settlement Act.
McCaskill said that's not the case as ANCSA was approved in 1971, while the contracting preferences came along about 15 years later. Kitka's view is that the preferences were added to federal law by Stevens as a way of improving the situation for Alaska Natives by making it easier for the corporations to earn money.
To many outside of Alaska, the contracting preferences are seen as an unfair advantage granted to one group at taxpayers' expense.
Christina Schneider, the chief financial officer of a construction company near Fort Drum, N.Y., said her firm was prepared to bid on a new contract to continue construction services at the post.
"We were confident of our ability to compete for the new contract based on our previous experience and outstanding performance on the existing contract," she said.
She said the company was "shocked" to learn that an Army office in Fort Eustis, Va., decided to award a 10-year $400 million contract to two Alaska firms, Chugach and Alutiiq, without going to bid.
Schneider said the Army officials at Fort Drum said they opposed the decision but had no power to override it. Schneider said her company was not allowed to protest a decision because federal rules require that only competing bidders can protest. She said the two Alaska firms have received more than $6 billion in federal contracts during the past nine years.
"The unfair advantages enjoyed by these large Alaska Native corporations must be closely re-examined," she said.
McCaskill said government benefits that might be due Alaska Natives by the federal government should be addressed in some other manner and "not in a way that is driving the competitive process in the wrong direction."
After the meeting, the sharp divisions on the topic were expressed in the statement released by the "Keep Native 8(a) Working" lobbying group formed by Native corporations and tribes.
McCaskill "clearly lacks a full understanding of the positive socio-economic impact this program has in Native American communities," the group stated.