Native no-bid contracting sows tension in US Senate

HEARING TODAY: Federal report calls for limits as Alaska delegation comes to corporations' defense.

July 15, 2009 

WASHINGTON -- Wealthy Alaska Native corporations that benefit from no-bid federal contracts have used their special preferences far beyond their original purposes, said Sen. Claire McCaskill, D-Mo., who will be leading a critical public review of the program today.

McCaskill, chair of a Senate oversight subcommittee, will be examining how some of the companies have used federal small business guidelines to fuel their explosive growth.

McCaskill, a former state auditor from Missouri, said she plans to go into her subcommittee hearing with an open mind. But she also said she's skeptical of the large, no-bid federal contracts that Alaska Native corporations are able to obtain.

In an interview this week, she said she wants to determine whether Native corporations have "participated in a giant loophole to competitiveness."

"I will certainly admit I have a bias toward competing for contracts that involve public money," she said. "I'm not ashamed to admit that bias. I think it's a healthy bias."

Special rules introduced into law in 1986 by then-Sen. Ted Stevens, R-Alaska, allow Native corporations to be eligible for no-bid federal contracts of any size, unlike other small businesses, which are capped at $5.5 million for federal contracts under the Small Business Administration's 8(a) Business Development Program.

Since 2000, federal awards to Alaska Native corporations have grown 1,386 percent, reaching $3.9 billion last year, according to a report issued last week by the Office of the Inspector General of the Small Business Administration. Half of those contracts went to just 11 of the 203 eligible Alaska Native firms, the report found. Those 11 corporations landed 82 percent of their contracts without competitive bidding.

"These are no longer small companies that are trying to find their way and grow in order to help the Alaska Native population," McCaskill said. "I've got no problem (with Native corporations) existing for the benefit of people in Alaska, and them getting their fair share of the profits. But I'm not sure that it's fair to taxpayers that we have this huge exception where they never have to compete for anything regardless of how big or dominant they get in the marketplace."

The hearing, by McCaskill's Contracting Oversight Subcommittee of the Senate Committee on Homeland Security and Governmental Affairs, will explore the potential abuses of the program and focus on her own staff's findings as well as those in SBA's inspector general report from last week.

She said it's worth examining why a certain group of corporations have a different set of rules.

"Is the reason is you want to give people experience in the government contacting process and get their foot in the door?" she said. "Or is the reason we want to allow certain classifications of folks the ability to sole-source contract?"

She also said her pursuit of accountability had little to do with the departure of Stevens, who spent 40 years in the Senate and was a vocal defender of Alaska-related programs.

"I think it's unfair to the current Alaska senators and frankly elevates Sen. Stevens beyond where he should be, to say that this is about Ted Stevens. I don't think it is," she said. "I think this is about a program that began as an effort to allow the Alaska Native corporations to participate in federal contracting and just somehow has grown bigger than anyone probably envisioned."

McCaskill's oversight hearing prompted four Alaska Native corporations to join a coalition with Native American tribes and businesses to fight what they say is misrepresentation of their role in government contracting.

"We want to make sure that people understand that this is a great program. It is a program that was designed by Congress and intended to benefit economically disadvantaged people. And that is precisely what the program does," said Helvi Sandvik, president of the Anchorage-based NANA Development Corp.

Sandvik defended the no-bid contracts many Alaska Native corporations depend on, calling them "negotiated contracts" to provide federal services.

"In order to do a 'no bid' contract, you have to negotiate. It's not like somebody just hands you a blank check," she said. "You as a contractor have to lay out the costs associated with delivering that work and to defend those costs and to demonstrate that they're competitive in the marketplace."

Sandvik added that they do not believe the preference contracts cost taxpayers money.

"These are federal budgets that have already been approved, services that need to be delivered," she said.

Their coalition has the support of the state's entire congressional delegation; both Democratic Sen. Mark Begich and Republican Sen. Lisa Murkowski wrote to McCaskill, expressing their concerns about her inquiry.

"I think we want to make sure we're not doing it because someone 'feels' a certain way, but (because) there's some good data that shows the federal government is not spending properly or it's not doing what the mission of what 8(a)s are about," Begich said this week. "I hope it's not a witch hunt; I hope it's not a specific attack on Alaska Natives in our state. That would be a big mistake."

McCaskill said she was "surprised by the amount of heat and intensity" generated in reaction to the hearing.

"I think we're onto something because there is a teeth-gnashing and screeching going on that I think is potentially out of proportion to what we've announced in terms of the topic of the hearing," she said.

The SBA's inspector general's report found that federal agencies often prefer noncompetitive, sole-source awards because they are a "quick, easy and legal method of meeting their small business goals."

"However, such awards may not result in the best value for the government and have been discouraged by a recent presidential memorandum unless their use can be fully justified and safeguards put in place to protect taxpayers."

But the report's authors also added that the program has helped the Native corporations "fulfill a mission that is broader than the bottom line of the corporations -- namely, to help Alaska Natives achieve economic self-sufficiency."

That's important, the report pointed out, because unlike other small, disadvantaged businesses eligible for the program whose profits go to only a few individuals, profits generated by Native corporations go to all shareholders. They also pay for scholarships, cultural programs, employment assistance, jobs, internships, subsistence activities "and numerous other services to the communities where their shareholders live and work."

The inspector general's report suggests looking into whether the growth in Alaska Native corporation participation in federal contracting has crowded out other small businesses. It suggests that it may be time for Congress to consider whether it's time to end the exemptions that allow Native corporations to land no-bid contracts with no limit on contract size. It also suggests requiring the corporations to report to the SBA on how their revenues are benefiting Alaska Natives.


Find Erika Bolstad online at adn.com/contact/ebolstad or call 1-202-383-6104.

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