House panel investigates ANCs: Federal unions also question unique status of Alaska Native corporations

"This is not about sacred cows. It's about the people's business. There are too many things in this town that people don't want touched." | Rep. Tom Davis (R-Va.)

Michael Kleinfeld

Rep. Henry Waxman (D-Calif.)

Greg Whitesell

The House Government Reform Committee is investigating whether the special regulations giving Alaska Native corporations an edge in federal contracting are benefiting the government or Alaska natives.

Reps. Tom Davis (R-Va.), chairman of the committee, and Henry Waxman (D-Calif.), ranking minority member, wrote to the Government Accountability Office to ask for a review of the use of ANCs by agencies awarding sole-source small-business contracts.

The congressmen also asked the departments of Defense, Homeland Security and State to turn over information about the number and value of large sole-source contracts they awarded to ANCs.

Davis said that a body of anecdotal evidence suggests that federal agencies are using ANC regulations to avoid the time and expense of open competitions, or as a way to steer work to particular large companies that work as subcontractors to the ANCs.

"We're going to hold hearings to look at what the facts are," Davis said.

ANCs are tribal corporations set up in the 1970s as part of the Alaska Native Claims Settlement Act. These corporations can own numerous 8(a) small businesses and enjoy benefits that other 8(a) companies do not. The value of sole-source contracts that ANCs can win is unlimited; the cap is set at $3 million for most 8(a) companies. Hawaiian native and Native American tribes are included in the regulations, but ANCs so far have been the target of most of the criticism.

Outside the 8(a) set-aside program, sole-source contracts usually can be awarded only when there are significant time constraints, for instance, or there is only one company qualified for a particular project. But these requirements do not apply to a tribal corporation.

Some of these sole-source contracts have been worth billions of dollars, such as the National Geospatial-Intelligence Agency contract awarded to a joint venture of two ANCs, Chenega Corp. and Arctic Slope Regional Corp., which was worth $2.2 billion, according to the letter from Davis and Waxman to GAO.

Davis told Washington Technology that although the intent of the program ? providing economic development opportunities to historically disadvantaged tribal peoples in Alaska ? is understandable, the program has never undergone any scrutiny as to whether it is meeting its goals and the tradeoffs required in other areas of federal policy.

The first question the committee asked GAO to consider is whether under the rules, the majority of government contracts could be awarded on a sole-source basis to ANCs.

Not only do ANCs enjoy an advantage in sole-source contracts, they also have an edge in working with large integrators. If an ANC and a big company form a joint venture, as long as the ANC owns 51 percent of the equity, all of the work counts toward the customer agency's small-business quota.

The congressmen also questioned the practice of using large businesses as subcontractors. The large companies that perform most of the work on these contracts "should be capable of obtaining federal contracts through the standard competitive process," Davis and Waxman said in their letter.

Asked whether he is considering altering or eliminating the regulations giving ANCs their advantage over other contractors, Davis said he wouldn't prejudge what rules might be changed.

"I think we'll look at the sole-source provision," he said, noting there are several limits that would let ANCs do business.

Tribal corporations also have an edge in obtaining defense-outsourcing contracts that are subject to A-76 competitions, which let federal employees compete with contractors for work. Under the rules, the military can sidestep the A-76 process through "direct conversion," making the outsourcing contract award directly to an ANC without going through the time-consuming procedure.

The committee wrote to GAO that with these advantages, "it is not surprising that five Alaska native corporations were in the top 10 disadvantaged minority small businesses for 2004, and that they advertise their ability to receive federal contracts without competition."

The committee asked the departments to submit detailed information on several contracts awarded to ANCs. The Pentagon was asked to give any information, including "decisional or justification documents," on the Army's award in July 2003 of two sole-source, five-year contracts, each worth up to $500 million, to provide private security guards for Army bases.

The contracts were awarded to Alutiiq Security and Technology LLC and Chenega Technical Products LLC, both ANCs. The two companies awarded subcontracts to Vance International Inc. and Wackenhut Services Inc., two of the largest security companies in the country.

Anne Wagner, assistant general counsel for the American Federation of Government Employees, said the union supports the House committee's investigation of these provisions. While preparing a legal challenge to a direct conversion to an ANC several years ago, the union became suspicious about who was running the ANC.

"It seemed to us that it was some Caucasian, white, former military types that were running the contracting operation," Wagner said.

As a group, ANCs deny their firms operate as fronts for any other companies.

"The Native American Contractors Association welcomes any investigation by the government that gets the full story of this program out to the American people," said Chris McNeil, chairman of NACA, in a written statement issued March 11.

"Our members have met with Chairman Davis and other members of Congress to demonstrate that the 8(a) program is working as Congress intended," McNeil said. The programs are "finally building tribal, sustainable economies that train our people, return a profit to our tribal members (numbering in the tens of thousands), educate Native American children and raise our communities out of poverty."

In an interview in February, McNeil said the corporations should be considered more like HUBZones ? another Small Business Administration program that grants a disadvantaged business designation to a geographical area instead of a business classification ? rather than other 8(a) companies, which typically have individuals as owners.

The committee's request asks GAO to look at the "impact of these contracts on employment, income, education and economic development for native Alaskans," who have a high unemployment rate.

One wild card in this is the close relationship between the Alaskan tribes and the state's senior senator, Ted Stevens. The Republican has been diligent in looking out for tribal interests ? McNeil said the tribes comprise almost a quarter of his constituency ? and for years he was chairman of the Senate Appropriations Committee.

Asked about taking on a subject of special interest to a powerful senator, Davis laughed. "This is not about sacred cows. It's about the people's business," he said. "There are too many things in this town that people don't want touched. ? I'm a pretty powerful congressman myself." n

Patience Wait is a senior writer with Government Computer News. She can be reached at

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