FAIRBANKS -- A federal budget rule requiring written justification for certain no-bid contracts topping $20 million has harmed Alaska Native corporations, according to the Alaska congressional delegation.
"It is our concern that the implementation of Section 811 has unnecessarily and negatively impacted Native community-owned contractors," Sens. Lisa Murkowski and Dan Sullivan and Rep. Don Young said in recent letters to Defense Secretary Ash Carter, signed by 13 other members of Congress.
In 2009, Congress approved a defense bill amendment, known as Section 811, that required a written justification for sole-source contracts more than $20 million under the so-called 8(a) program.
The 8(a) program, set up under the Small Business Administration, is one of the major ways in which the federal government offers incentives to minority-owned businesses, including special provisions that have bolstered the fortunes of many Alaska Native corporations in getting large federal contracts.
The justification rule challenged by the congressional delegation orders government contracting officers to explain why a no-bid contract is a better deal for the government than a competitive bid when the amount is more than $20 million.
More than $2 billion in such sole-source contracts were issued in 2009 under the 8(a) program, dropping to $221 million in 2013, the Government Accountability Office said. Companies owned by Alaska Native corporations and Indian tribes are the chief recipients, while most of the participants in the small-business development program are not eligible.
The letters to the defense secretary said some Native corporations have found federal officials won't work with them "out of fear of political scrutiny, even when a contract award may be justified."
The three elected officials wrote the GAO has reported that "Section 811 has been improperly interpreted and, or improperly implemented."
But the report they referenced, released in September, doesn't make that broad allegation. The chief criticism in the GAO report is that federal agencies were too slow to implement the new justification requirement and contracting officers offered incomplete information. A lack of time was the main justification for no-bid contracts, the report said.
"Our prior work has found that contracting officers viewed 8(a) contracts to tribal firms as a way to expedite the federal acquisition process," the GAO said.
The Department of Defense approved 27 no-bid contracts exceeding $20 million under the 8(a) program in fiscal year 2009, valued at more than $2 billion. In 2013, it approved four contracts valued at $221 million.
The Alaska delegation and others inserted language into an appropriations bill last year calling for a Defense study within 90 days about whether the justification rule has "negatively impacted the ability of covered entities" to get no-bid contracts in excess of $20 million. The officials also asked for details on whether the rule has discouraged agencies from signing no-bid contracts and whether the rule has been "misconstrued and/or inconsistently implemented."
A 2014 presentation by the law firm Birch Horton Bittner & Cherot said there was a "precipitous drop" in contracts worth more than $20 million after the rule took effect and that Alaska Native corporations have seen slower growth -- or even decreases -- in revenue.
A 2012 report by the Rand Corp. quoted SBA statistics that Alaska Native corporations saw an increase in federal contracts from $265 million in 2000 to $3.9 billion in 2008. Most of the contracts went to the largest corporations and most were no-bid contracts.
That report said sole-source awards without a justification process could take as little as two months, while the justification process could double that time. Competitive contracts take an average of eight months, it said.
Young has argued that Section 811 is part of a process of attacking Native contractors that began when Sen. Ted Stevens left the U.S. Senate and that it was "snuck" into the defense bill in 2009. Young has said the rules are burdensome and have a chilling effect on those who consider future contracts.