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In July 2009, Alaska Native Claims Settlement Act Corporation Chugach World Services Inc in Anchorage, Alaska received a $55 million Indefinite Quantity firm-fixed-price contract to revitalize Buildings 2266 and 2264 at Fort Sam Houston, TX. Work is to be performed in San Antonio, TX with an estimated completion date of July 30/11. One bid solicited with one bid received by the U.S. Army Engineer District in Fort Worth, TX (W9126G-09-C-0055).

If an Alaska corporation seems like an odd single-solicitation choice for work in Texas, you’re not alone. Chugach has a long history of federal contracts for similar work all over the USA, however, which makes them an experienced partner. They’re not alone, either. ANCs’ share of federal contracting has grown from $1.1 billion in FY 2004 to $3.9 billion in 2008, including some key front-line contracts. That’s 26% of 8(a) dollars, going to 2% of registered 8(a) firms. Meanwhile, the US Small Business Administration’s Inspector General has released a pair of reports in the past 2 years, documenting issues with ANCs…

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The July 2009 Small Business Administration’s Inspector General (SBA IG) report says that unique federal contracting privileges for Alaska Native Corporations (ANCs) damage the prospects of small, disadvantaged firms seeking federal business under the 8(a) small business contracting program.

Federal agencies are supposed to award 5% of their contracting dollars to small, disadvantaged businesses, of which 8(a) firms are a subset.

ANCs can also participate in the 8(a) program, but they have a number of additional advantages. Exemptions from competition requirements for larger contracts above $5.5 million. No $100 million cap on the total sum of money a single firm can receive under the 8(a) program. Not to mention relaxed restrictions on the number of firms that can be owned by an ANC 8(a) firm, creating a set of “small” firms that are really a large firm with operating divisions – and pre-existing relationships that have encouraged federal agencies to meet quotas by awarding large, sole-source contracts to ANCs.

Even within ANCs, the SBA IG says that no limits on sole-source awards concentrate the benefits. In FY 2007, 50% of ANC awards went to just 11 ANC firms, or 6% of the total. Furthermore, those top 11 firms received 82% of their 8(a) awards without competition.

Ultimately, the report concludes that:

“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 report has triggered a Senate hearing on the matter, and may lead to legislation that equalizes treatment of all 8(a) firms. In her opening statement, Sen. Claire McCaskill [D-MO] noted that:

“The Department of Defense is by far the largest user of ANC contracts. In total, the Department of Defense spent $16.9 billion on contracts with ANCs from 2000 to 2008, more than 70% of ANC spending overall. The agencies with the next highest proportion of ANC contracts are the Department of the Interior ($1 billion or 4.4%) and the Department of Homeland Security ($980 million or 4.1%).

The Subcommittee’s investigation has shown that most contracts with Alaska Native Corporations are performed outside Alaska. Between 2000 and 2008, only 21% of all contract dollars awarded to ANCs ($5 billion) were performed in the state of Alaska. The state with the next highest percentage of contract dollars is Virginia ($4.4 billion or 19%), followed by Maryland ($1.6 billion or 6.7%), Florida ($1.4 billion or 5.7%), and California ($1.1 billion or 4.7%). In 2004, 2006, 2007, and 2008, more ANC contract dollars were performed in Virginia than in Alaska. See Figure 2.”

That volume has also created other problems. In 2008, an SBA IG report examined 2 ANCs who reportedly served as “pass-throughs,” receiving up to $833 million from 2003-2006, and directing it to firms that were not eligible for the 8(a) program: APM in Yorba Linda, CA, and Goldbelt Raven in Chantilly, VA. From the report’s addendum:

“On July 2, 2008, we provided the Agency with the draft report for review and comment. On August 5, 2008, the Associate Administrator for GCBD provided formal written comments, concurring with all five recommendations. The full text of management’s comments can be found in Appendix V. The Associate Administrator stated that she has initiated actions to terminate and suspend the two ANC-owned 8(a) firms, which she expects to be completed by August 8, 2008, and will notify procuring agencies of the suspensions. Within 30 days she will issue a Procedural Notice that requires disclosure of management and other agreements in annual updates, and a careful examination of data submitted during annual updates to identify business relationships impacting participant size and eligibility.

The Agency will also review all other 8(a) companies owned by the two parent ANCs to determine their continued eligibility in the 8(a) program.”

Goldbelt Raven appealed its suspension on Sept 25/08, and a stay was granted on Oct 15/08, pending resolution of 8(a) termination proceedings. On April 10/09, however, Goldbelt Raven withdrew its appeal and moved for dismissal, pursuant to a settlement agreement with the US SBA.

Additional Readings

• US Senate, Committee on Homeland Security and Governmental Affairs (July 16/09) – Contracting Preferences for Alaska Native Corporations Ad Hoc Subcommittee on Contracting Oversight
• California Watch (Jan 30/10) – Federal stimulus program pours $54 million into Wine Train project. “Federal records show that Suulutaaq is paying Kiewit $28.1 million – 53 percent of the total stimulus contract. Suulutaaq is keeping about $20.4 million, or 38 percent of the total. The rest, about $4.7 million, goes to other subcontractors, all from the lower 48 states.”

• Project on Government Oversight (July 15/09) – IG Report Blasts Contracting Privileges for Alaska Native Corporations

• Washington Technology (July 13/09) – ANCs Head to Hill to Polish Image

• US SBA Inspector General (July 10/09) – Participation in the 8(a) Program By Firms Owned by Alaska Native Corporations [PDF]

• US GAO (July 9/09, #B-401057.2) – Small Business Administration-Reconsideration. “The Small Business Administration (SBA) asks that we reconsider our decision in Mission Critical Solutions, B-401057, May 4, 2009, 2009 CPD para. 93, in which we concluded that, prior to the award of a contract to an Alaska Native Corporation on a sole-source basis…”

• US SBA Office of Hearings and Appeals (April 13/09) – Matter of Goldbelt Raven, LLC, SBA No. BDP-319 (2009) [PDF]

• Frederick News Post (Aug 22/08) – Goldbelt Raven hires new president after SBA criticism

• Project on Government Oversight (Aug 14/08) – Latest SBA Audit Finds Abuses in Alaska Native Corporation Contracts

• Washington Post (Aug 13/08) – Firms Redirected Money Meant For Native Alaskans, Audit Finds

• US SBA Inspector General (Aug 7/08) – Non-native Managers Secured Millions of Dollars from 8(a) firms owned by Alaska Native Corporations Through Unapproved Agreements that Jeopardized the Firms’ Program Eligibility [PDF]

• US GAO (Sept 19/07, #GAO-07-1251T) – Alaska Native Corporations: Increased Use of Special 8(a) Provisions Calls for Tailored Oversight

• US GAO (June 21/06, #GAO-06-874T) – Alaska Native Corporations: Increased Use of Special 8(a) Provisions Calls for Tailored Oversight