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Alaska Dispatch: Alaska Native Corps. Fight To Keep Favoritism in Federal Contracting

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Small business designation under the U.S. Small Business Administration can be a lightning rod for success for companies owned by Alaska Native tribes and corporations, which enjoy privileges under the program not afforded to other participants. In particular, only Native-owned businesses have the ability to land sole-source, no-bid, unlimited-value contracts with the federal government -- a fact that raises some ire among those who oppose the preferential structure.

Critics claim Native corporations too easily secure big money contracts without doing enough to improve life in their shareholders' hometowns -- a founding ethic of the Alaska Native Claims Settlement Act. Plus, they say, unscrupulous outside interests can use the Native corporations as "front companies" to gain access to big contracts from which they might otherwise be excluded, and further direct work to subcontractors in which they have a financial stake. The worst case scenario? Money and jobs are passed on to entities with no Native ties at all.

Supporters counter that the potential for waste or abuse is not a legitimate excuse to thwart opportunity for Natives. Yet changes are already under way in response to demands for increased public accountability. The SBA has proposed requiring Alaska Native corporations to demonstrate how their contracts benefit their communities, and the Department of Defense -- the main source of contracting opportunities -- is requiring its officers to justify sole-source awards in excess of $20 million, which are available only to Native-owned corporations. No-bid awards for all other 8(a) businesses are restricted to $5.5 million or less.

Alaskans are resisting the change on both fronts. Many Alaska Native corporations have urged the SBA to rethink some of its intended reforms, and U.S. Senator Lisa Murkowski intends to try to repeal the new DOD reporting requirement. Murkowski says more paperwork will cause a chilling effect on awards, and more red tape won't necessarily improve transparency. Until she can get the regulation repealed, she's encouraging Secretary of Defense Robert Gates to proceed cautiously and with input from tribes in implementing the DOD's new rules. Murkowski says she's concerned that increased reporting requirements will result in lost opportunities for Native-owned firms.

She also suspects so-called reforms are small steps in a larger, more cutthroat agenda.

"I think it is the intention of some (people) to pull the plug on the 8(a) program for American Indian, Native Alaska and Native Hawaiians because they are demonstrating a level of success as they are pursuing these contracts," Murkowski said in a phone interview from her Washington, D.C., office. "Their shareholders are benefitting and there are others (small businesses) who are realizing they don't have the ability to do the same, and there is competition out there."

Murkowski also believes the preferential treatment Alaska Native corporations receive is a good thing -- and equitable in its own way.

"If it was just for Alaska Natives I would say that it is not fair. But it is (open) to all Native Americans," she said. "There is a trust responsibility that this country owes to our Native Americans. There is a unique political relationship that exists."

Sarah Lukin, executive director of the Native American Contractors Association and a shareholder in two Alaska Native corporations, agrees.

"Native enterprises are not like an individually owned 8(a) company," Lukin said. "Native corporations were formed in perpetuity to provide economic, social and cultural benefits to an entire community. How can an individual disadvantaged company or person have equal rights to a social enterprise that's serving an entire community of disadvantaged people?"

For Lukin, the issue is far more complicated than trying to root out government waste. Native country as it relates to government contracting has the challenging position of colliding with 11 different congressional committees that have jurisdiction over Native participation in governments, along with falling under three major overriding national policies: federal Indian policy, small business policy and federal procurement policy, Lukin said. And within that framework, there are government "contract purists" -- people who believe the only way to do contracting is via full and open competition -- who "do not believe that social issues should be addressed through government procurement," Lukin said.

But carried to the extreme, that philosophy will favor the "big boys" and shut out the very people -- minorities -- for whom the 8(a) program is designed to assist, Lukin said.

In search of accountability

One of the loudest critics is U.S. Sen. Claire McCaskill, D-Mo. In her role on the Subcommittee on Contracting and Oversight, McCaskill has sought to close federal loopholes she believes have led to waste and abuse in government contracting, with the rules favoring Alaska Native corporations squarely in her sights. In October, her efforts paid off when she won tougher oversight of defense contracting in the 2010 National Defense Authorization Act. McCaskill claimed victory for making the process "substantially more difficult to award sole-source contracts" over $20 million, effectively closing a "loophole in government contracting" that exclusively benefitted Alaska Native Corporations.

In summer 2009, Debra Ritt, Assistant Inspector General for Auditing for the SBA, testified before McCaskill's committee that sole-source awards do have upsides -- they are quick, easy and a legal way for federal agencies to meet small business goals. But she also noted that "reports by OIG (Office if the Inspector General) and GAO (Government Accountability Office) have shown that noncompetitive contracts have been misused, resulting in wasted taxpayer resources, poor contractor performance, and inadequate accountability for results."

A review of comments submitted to the SBA about the proposed changes shows many Native corporations support the agency's efforts to "mitigate abuse" and "perceived abuse."

They welcome including Native Hawaiians among the Native-owned businesses with access to sole source contracts of unlimited value. They agree that mandatory audits should occur on contracts over $10 million, and they stress that the SBA will require more funding and staffing to fulfill its more strenuous oversight goals. But there are areas where suggested changes have fueled alarm bells. Limits as to how business partnerships may be formed and the length of time Native corporations may stay in the 8(a) program generated comments about "drastic" effects and "catastrophic consequences." A proposed rule to report yearly on how benefits from 8(a) participation is reaching Native people prompted terms like "onerous" and "burdensome and unreasonable." Many are also critical of government value judgments about whether the corporations are fulfilling their missions.

"It's a lot more than just saying how many jobs did you provide to the Native community and how much did you pay in dividends," Lukin explained. "All of us provide unique benefits. One may focus on cultural aspects while another may fund substance abuse while another may focus on dividends."

There is also trepidation about offering too much information. The history of the Native community is if you start reporting on something, you are only a step away from government takeover, Lukin said. Where a corporation or tribe may think language preservation is a legitimate benefit, the government may decide job training is more paramount and direct profits to instead be spent in that way. Lukin is also concerned that corporations, villages and tribes vary so greatly in size and need that there is no measurable "benefit" that can apply to all situations. Smaller companies can't do as much as big ones, and forcing a show of tangible benefits could dissuade reinvestment that would promote company growth, hurting companies on the rise that might one day have the ability to share more with shareholders.

Lukin is convinced the SBA changes will be implemented by year's end. Whatever the outcome, Native entities will continue to work within the rules and to strive for accountability and transparency, she said. Still, Native corporations argue that they can weed out bad managers and corruption on their own, and question why they should be subject to more stringent performance guidelines than other American companies.

"Very frankly, Native enterprises are an easy target," Lukin said. "If you are looking at government contracting reform, it is a lot easier to pick on Native enterprises then to deal with broader government procurement reform."


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