Native corporations propose reforms in federal contracting

8A: 3 corporations suggest change as criticism of SBA process grows.

October 3, 2010 

Several of Alaska's most prominent Native corporations are breaking away from their peers by proposing a limit on the size of their contracts with the federal government.

The reformers say major changes are critical. The explosive growth of Native contracting has attracted such intense criticism and serious allegations of abuse -- especially in Washington, D.C. -- that it is in mortal danger, executives of the three companies said.

"To reform it is to save it," said Margie Brown, chief executive of Cook Inlet Region Inc.

Alaska Native firms have become dominant players in the U.S. Small Business Administration 8(a) program, designed decades ago to boost the participation of small, disadvantaged firms in the multibillion-dollar industry of federal contracting.

But the growth of Native contracting has overwhelmed regulators' ability to provide adequate oversight, and some Native firms and their non-Native subcontractors have been violating the rules, according to recent federal audits.

The scrutiny is intensifying. Last week, as part of a series of articles on Alaska Native contracting, The Washington Post published a story alleging that one of the nation's largest government contractors used its connections with an Alaska Native subsidiary and another non-Native firm to improperly obtain work intended for small businesses. On Friday, the SBA suspended the large Northern Virginia contractor, GTSI Corp., from obtaining any new federal contracts.

So far, much of the scrutiny has focused on a relatively small number of Alaska Native firms that are generating hundreds of millions of dollars in revenue from 8(a) contracts. But increasingly, tiny village corporations and tribal-owned firms in rural Alaska and the Lower 48, as well as Native Hawaiian firms, are turning to 8(a) as a potential economic engine.

Some of Alaska's Native firms have obtained no-bid contracts worth more than $1 billion -- not nearly as lucrative as the no-bid contracts awarded to the nation's largest non-Native federal contractors but still enough to provide a noticeable boost to shareholder dividends, scholarships and cultural programs.

At a recent SBA hearing, Betty Huntington, the chief executive of a Yukon River village corporation named Gana-a'yoo Limited, testified that without 8(a), "I think we would still have been struggling to survive. I don't think we would have been finally able to achieve positive retained earnings, which was only three years ago in 2007."

She said most of her company's shareholder dividends were generated in that period. She said her board was "really excited" this year that it could afford a $50,000 donation to support scholarships averaging $2,100 per student.

"That may seem small to some, but there's a lot of room for doing more ... doing better, which we look forward to," she said.

PROPOSED REFORMS

The SBA has already proposed some revisions to its rules to tighten its oversight of the 8(a) program. The new rules are expected to be finalized at the end of the year.

The nine-point reform package recently announced by Anchorage-based CIRI, Fairbanks-based Doyon Limited and Barrow-based Arctic Slope Regional Corp. echoes many of the federal agency's proposed changes, including a requirement that Native 8(a) contractors disclose annually how they have benefited shareholders and tribal members.

While some Native contractors are questioning the SBA about how they will have to report those benefits -- and whether it will be public information -- that reform is not so controversial.

What's created the most dissension is the three companies' proposal to cap the size of no-bid federal contracts that could be awarded to Native firms.

CIRI, Doyon and Arctic Slope propose capping the size of those contracts at $100 million.

The three companies participate in 8(a). In the past, Doyon and Arctic Slope have both been awarded competitive or noncompetitive contracts larger than $100 million.

"They all have had a bite at the apple. Why would you do this to everyone else?" said Ron Perry, president of the National 8(a) Association and a CIRI shareholder.

Will Anderson, chief executive of Koniag Inc., said one reason the cap is troubling for other Native firms is that it could restrict growth for corporations with a large number of shareholders.

He said his company, for example, needs to expand its business operations "an order of magnitude larger" to provide a more meaningful dividend to its 3,700 shareholders who have roots in the Kodiak region.

The Native American Contractors Association, a trade group that represents some but not all Alaska Native, Lower 48 tribal and Native Hawaiian 8(a) contractors, attacked the $100 million cap as "arbitrary."

The association said the proposal opens the door to "continued downward pressure" on contract awards.

But is a $100 million threshold that severe? Federal audits show that it is in the high range of contracts awarded to Native firms in recent years, despite the fact that some contracts have exceeded $1 billion. Critique of the reform proposal.

OTHER IDEAS

A top SBA official, at a recent hearing, told one Alaska Native executive, who was questioning one of the agency's proposals to tighten regulations, that the 8(a) program is "in fact a business development program. It's not a contracting program."

The official, Joe Loddo, stressed that thousands of companies have joined the 8(a) program, but few have graduated from it in the last several years. That makes it hard to defend the program from attacks, and it's why some rules need to change, he said.

The three companies said they hope other Native firms will launch their own reform ideas.

"This is kind of a battle of ideas," said Aaron Schutt, senior vice president of Doyon.

"We aren't speaking for any other corporations," added Tara Sweeney, Arctic Slope's vice president for external affairs.

But Sen. Claire McCaskill, D-Mo. -- the harshest critic of Native contracting in Congress -- said via a spokeswoman this week that the reform package doesn't go far enough.

McCaskill wrote on her Twitter account this week, in relation to The Washington Post series on Alaska Native contracting, "Hope other Senators will now help."


Find Elizabeth Bluemink online at adn.com/contact/ebluemink or call 257-4317.

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