IG Report Blasts Contracting Privileges for Alaska Native Corporations

A report released last week by the Small Business Administration's Inspector General (SBA IG) shows that unique federal contracting privileges for Alaska Native Corporations (ANCs) damage the prospects of small, disadvantaged firms seeking federal business under the 8(a) contracting program.

To qualify for the 8(a) program, businesses must meet size standards and be owned by economically and socially disadvantaged individuals. 8(a) firms receive some special considerations in federal contracting, and federal agencies are supposed to award five percent of their contracting dollars to small, disadvantaged businesses, of which 8(a) firms are a subset.

ANCs, whose shareholders are members of Alaskan tribes, can also participate in the 8(a) program while receiving additional advantages over other firms in the program. Advantages for ANCs include exemptions from competition requirements for larger contracts and a cap on the total sum of money a single firm can receive under the 8(a) program. Restrictions on the number of firms that can be owned by an 8(a) firm are also relaxed for ANCs, allowing subsidiaries and affiliates with access to the financial resources and management expertise of a large parent company to compete for 8(a) contracting dollars against small firms with limited resources.

These advantages have contributed to a massive increase in the value of contract awards to ANCs. According to the IG, federal “obligations [to ANCs] have grown by 1,386 percent since FY 2000, and have more than tripled in recent years, from $1.1 billion in FY 2004 to $3.9 billion in FY 2008.” A 2006 GAO report cited by the SBA IG further explained that time pressures, small contracting staffs, and incentives in meeting small business contracting goals have encouraged federal agencies to award large, sole-source contracts to ANCs.

ANCs' contracting advantages were created with the admirable intent of providing jobs and income for Alaskan natives, but the IG concluded that that ANCs' extensive privileges in federal contracting create various complications and may not even be the best method for aiding Alaskan natives. According to the report:

Long-term 8(a) contracting trends show a continued and significant increase in obligations to ANC-owned participants, many of which were made through sole-source contracts. This growth suggests that the special advantages afforded ANC participants may be limiting the number of non-ANC disadvantaged firms that secure 8(a) contracts. In addition, while the 8(a) program is undeniably benefiting Alaska Natives, our audit showed that a few ANC participants received a disproportionate share of the 8(a) obligations. Further, because studies have shown that sole-source contracts do not always provide the Government with the best value, it is questionable whether ANC contracting advantages under the 8(a) program are the most cost-effective way of assisting Alaska Natives.

The latest IG report is not the first to raise concerns about elements of ANCs' involvement in the 8(a) program. Last year, the SBA IG released a report on two ANCs serving as “pass-throughs” that directed large sums of money, some of which came from sole-source contracts, to firms that were not eligible for the 8(a) program. POGO has also previously raised concerns about the negative effect ANCs' special privileges have had on competition in federal contracting.

Congress may be taking action soon to curtail contracting privileges for ANCs. The Senate Committee on Homeland Security and Governmental Affairs' ad hoc Subcommittee on Contracting Oversight has scheduled a hearing for Thursday on ANCs' federal procurement advantages, which the Committee's website describes as means “for avoiding competition and passing work through to large, non-Native contractors.” Washington Technology reported on Monday that Native American organizations are gearing up for a fight, explaining that “Native8(a)works, a group of tribes, organizations and businesses, launched its effort to tell Congress about what the Small Business Administration's 8(a) Business Development Program does for the United States' indigenous people and why the program should not be changed.”

-- John Cappel